U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) unveiled a second version of their crypto bill last week, creating a definition for decentralized finance and addressing issues ranging from anti-money laundering provisions to custody rules. The bill also grants the Commodity Futures Trading Commission (CFTC) clearer authority over crypto issuers, giving the Securities and Exchange Commission a defined, but arguably more limited role than it enjoys at present. It’s not clear to me whether this version of the bill has any greater chance at becoming a law than last year’s version. But it doesn’t have to become a law to be a success. This is a comprehensive bill – if other lawmakers decide to borrow parts, or at least look at parts while they consider their own legislation, this bill could still drive the conversation in D.C., such as it is. Of course, the biggest hurdle the lawmakers face is their fellow lawmakers: Congress as a whole has shown not much appetite for passing any crypto-specific legislation into law in the current climate, though bills continue to be introduced. The House Financial Services Committee may be the closest to moving any legislation, with markups anticipated on the stablecoin and market-structure bills currently introduced to that body. The bill itself addresses a wide swath of the crypto industry’s biggest questions. Perhaps the most important details are defined in sections 4 and 5. Section 4 – titled “responsible commodities regulation” in a section-by-section fact sheet – defines the terms “crypto asset” and “crypto asset exchange” under commodities law, enshrining CFTC authority over crypto spot markets. This is a key ask by that regulator, and echoes a goal of last year’s version of the bill. One criticism of the first draft came from SEC Chair Gary Gensler, who cautioned that it might “undermine” other rules overseeing securities markets. The lawmakers say they incorporated SEC feedback into this new version, creating another definition for crypto assets which are not securities despite not being decentralized and which depend on “entrepreneurial and managerial efforts that determine” their value. The SEC can challenge whether any given asset is indeed not a security. Other important provisions include a de minimus tax exemption of up to $200 for payments. This is another major issue for the industry: Right now, every type of transaction faces a capital gains/loss tax, regardless of the amount transacted. Someone buying a cup of coffee for $2.50 would face the same type of tax liability as someone who transacts with thousands of dollars’ worth of crypto. Beyond the actual literal cost, the tax rules currently in place also require all U.S. persons to keep track of each transaction for when they file their tax returns, an issue for both individual users and the IRS. This type of provision would address these concerns. Some of these provisions echo bills or regulatory issues we’ve seen before: there are definitions for stablecoins, algorithmic stablecoins, anti-money laundering rules, the definition of a “broker” for tax purposes and settlement finality. Regardless of its chances of becoming law, this bill should likely generate some discussion. If you have any thoughts the various provisions – whether you think something needs clarity, is unnecessary, will help the industry immensely, etc. – reply to this email and you may see your comment in next week’s edition of the newsletter. | 