In an effort to create a comprehensive regulatory framework for digital assets, senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) proposed the Responsible Financial Innovation Act on Tuesday.
The legislation addresses a massive source of confusion within the cryptocurrency space: whether the digital assets can be considered securities. A press release for the act states that “most digital assets are much more similar to commodities than securities.”
The Lummis-Gillibrand bill assigns regulatory authority over such digital assets to the Commodity Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC).
To determine which digital assets are classified as commodities over securities, Sens. Lummis and Gillibrand propose that those which are “fully decentralized” be treated as commodities, naming Bitcoin and Ether as examples.
Determining whether a digital asset is truly decentralized, or not controlled by one entity, might be difficult, however. To make a “clear distinction,” the act treats each digital asset as an “ancillary asset” presumed to be a commodity—so long as it doesn’t act as a security issued by a company as debt or equity, or provide privileges like rights to profits or other financial interests in a company.
But it’s still murky, Tony Tuths, KPMG tax digital asset practice leader, alternative investments, told Fortune in an email. “The legislation calls for the CFTC to be the primary regulator, but then carves out a wide swath of tokens that have attributes similar to securities for regulation by the SEC,” Tuths said. “It will be a struggle to decipher what exactly is in the SEC bucket, but it could be the exception that swallows the rule.”
The bill by Lummis, who is an outspoken advocate for cryptocurrency and owns between $100,000 and $250,000 worth of Bitcoin, and Gillibrand gives the CFTC authority over applicable cryptocurrency spot markets in addition to futures contracts for Bitcoin and Ethereum.
It also contradicts SEC chair Gary Gensler, who has repeatedly argued that most digital assets are securities and fall under the authority of his agency.
Nonetheless, the Responsible Financial Innovation Act was highly anticipated as the Biden administration and U.S. regulators repeatedly mentioned plans to implement potential regulation for the digital asset market.
To Lummis and Gillibrand, the legislation “encourages responsible financial innovation, flexibility, transparency, and robust consumer protections while integrating digital assets into existing law,” their release states.
“To date, the Lummis-Gillibrand bill is the most substantial and comprehensive bipartisan effort to provide certainty and clarity to the growing digital asset and blockchain industries.”
The disagreements between this bill, the SEC, and whatever similar effort comes out of the House mean this is likely just the start of what’s to come. “Some hot digital asset policy issues are addressed in today’s legislative release by Senators Lummis and Gillibrand,” Tuths wrote to Fortune. “Big picture: This is a great view into what a few people on the Hill think the rules should be for crypto, but it is unlikely this legislation moves forward in the foreseeable future.”
