New Senate crypto bill is only the beginning for an industry seeking clarity

“It is critical that the United States play a leading role in developing policy to regulate new financial products, while also encouraging innovation and protecting consumers,” Gillibrand said in a statement.

The 69-page bill, known officially as the Responsible Financial Innovation Act, is sweeping in scope. It sets clear definitions for terms as basic as “digital asset,” answers questions about how decentralized autonomous organizations should be taxed, and, perhaps most significantly, sets a line as to who within the U.S. federal government should oversee which part of crypto trading.

So far, the bill has predictably been met with praise from the industry. That’s at least partly because it gives the Commodity Futures Trading Commission a large say over underlying crypto markets. Executives and lobbyists across the cryptoverse have been aggressively jockeying for the CFTC, a far smaller regulator than the Securities and Exchange Commission that oversees derivatives markets in the U.S., to take the lead on regulating crypto—and, by all accounts, the legislation does just that.

(On Wednesday, Lummis and Gillibrand, speaking at an event hosted by the Washington Post, did push back on the notion that their bill provides the CFTC more control than the SEC. Lummis, in fact, went so far as to say she agrees with SEC Chair Gary Gensler that most crypto tokens today are securities and would need to be treated as such under the regulator’s purview.)

But the Lummis-Gillibrand bill, as hotly anticipated and eagerly awaited as it was, is only the start. The specific regulatory measures to be enacted are still unclear—making the next step of actually finalizing something the hard part.

“This is going to be a process. I don’t know if everybody understands or sees this, but this really is a financial sector transformation. And so it’s normal for there to be growing pains,” Global Digital Asset & Cryptocurrency Association CEO Gabriella Kusz told me this week. “And that’s okay. That’s a normal part of a transformation of a financial sector.”

Gripes over the particulars of the proposed legislation are bound to arise as the industry digests it.

Consumer and investor advocacy groups like the Center for American Progress, Better Markets, and Americans for Financial Reform have already come out swinging against the proposal, with Todd Phillips, director of financial regulation and corporate governance at CAP, tweeting Tuesday that the existing regulatory framework—that is, one based on securities and commodities laws—is better than what the bill proposes.

And more crypto-skeptical members of Congress, none more prominent than Senators Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts, will surely need a whole lot of convincing to get on board.

“The crypto industry is embarking on a full-blown lobbying campaign to get the regulatory treatment it wants: weak rules that will allow it to continue evading taxes, continue evading its responsibilities to comply with sanctions, continue polluting the planet, and continue scamming people without accountability,” Warren said in a statement. “Congress and federal regulators must stand up to crypto-industry lobbying, and put strong guardrails around digital assets to protect ordinary investors and maintain financial stability.”

Of course, none of this should be a shocker to you.

I realize I’m quickly starting to resemble a broken record, but it’s worth repeating that, in Washington, D.C., financial regulation is not something that is put together at blazing speeds. Lawmakers have an abundance of other issues to pay attention to, and crypto, let’s face it, is not one that is life and death compared to, oh, I don’t know, the war in Ukraine, soaring costs for everyday Americans, and mass shootings, to name just a few.

Whenever legislators do start to get their head around the Lummis-Gillibrand bill, though, there will be a sea of voices about it. When that will be is still, well, unclear.

Declan Harty
@declanharty
Declan.harty@fortune.com

DECENTRALIZED NEWS

Credits 🚀 

Welcome to the crypto fray, Citadel Securities. The Ken Griffin–founded trading giant is building a crypto “ecosystem” along with Virtu Financial, Charles Schwab, Fidelity, Paradigm, and Sequoia.

PayPal is officially a member of the BitLicense club in New York state.

Former President Barack Obama’s solicitor general, Donald Verrilli Jr., has joined Grayscale Investments’ legal team as it prepares for a decision from the SEC on whether it can turn the Grayscale Bitcoin Trust into a spot Bitcoin ETF.

Coinbase has launched a database of the hundreds of people who had offers recently rescinded by the crypto exchange. 

Debits 🐻 

All eyes are on New York state, where newly passed legislation could soon temporarily pause new crypto mining projects at fossil-fuel–reliant plants.

U.S. regulators are circling around the question of whether Binance improperly sold its popular BNB token back in 2017 through an ICO. 

Gemini has been sued by the Commodity Futures Trading Commission for allegedly making misleading statements in its push to launch Bitcoin futures back in 2017.

Custodia, the crypto bank formerly known as Avanti, has sued the Federal Reserve.

FOMO NO MO

The case of the shrinking paycheck. It wasn’t that long ago that just about everyone seemed to want to get paid in crypto. And why not? Times were good. Bitcoin boomed. Ether exploded. So it was shocking, yes, but also understandable why the likes of New York City Mayor Eric Adams, Jacksonville Jaguars quarterback Trevor Lawrence, and NASCAR driver Landon Cassill agreed to be paid, at least partly, through crypto. But the market has taken a dramatic turn for the worse, which has hit such paychecks hard, according to a report from the Financial Times. Adams’s first biweekly payment of $9,925 from January’s worth in crypto now? $7,416. Lawrence’s $22.6 million signing bonus? If it was held in Bitcoin, it’d be worth about $9.8 million today. 

From the article:

“Honestly, if we had had this conversation two years ago, I would have said it was a brilliant idea. Why wouldn’t you want your salary in crypto? All it does is go up,” said Mark Freebairn, who leads recruitment for chief financial officers at executive search group Odgers Berndtson in London. “Now I would say that was idiotic.”

BUBBLE-O-METER

$329 million

Crypto scams are alive and well. A new report from the Federal Trade Commission shows that, in the first quarter, about $329 million was reported in crypto fraud losses, nearly half the amount that was reported in all of 2021. 

THE LEDGER’S LATEST

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Ethereum founder criticizes New York’s Bitcoin mining moratorium: “I oppose banning proof of work” by Taylor Locke

“Buckle up, everyone.” Nate Chastain’s arrest shows the DOJ is serious about a crypto crackdown by Marco Quiroz-Gutierrez

Markets should brace for “fire” and “ice”: Morgan Stanley executive warns of a recession and even bigger “paradigm shift” by Tristan Bove

CFOs can’t avoid crypto—and 20% of large companies will use it in some way by 2024 by Sheryl Estrada

Binance’s own popular cryptocurrency tanks on rumors of SEC investigation by Christiaan Hetzner

Female executives control only 1% of shares at America’s biggest companies—and sometimes less, depending on the day by Colin Lodewick

SEC takes shots at meme stocks, retail trading, and crypto bros in a PSA. Reddit responds that it’s victim blaming by Christine Mui

(Some of these stories require a subscription to access. Thank you for supporting our journalism.)

IF YOU DON’T KNOW, CRYPTO

The Commodity Futures Trading Commission. I know, not “crypto” per se, but that’s for now. If Senators Lummis and Gillibrand and the crypto industry more broadly get their way, the CFTC will certainly be a key player in cryptoland before long. So, here’s a quick rundown: 

Founded in 1975, the CFTC is the U.S. derivatives regulator—meaning it oversees everything from futures contracts on corn to even a market where traders can bet on things like whether NASA will land a person on the moon before 2025. Under chairman Rostin Behnam, the agency has been moving to add underlying crypto markets to its umbrella (Bitcoin and Ether futures already trade under CFTC guidelines). The crypto industry, perhaps drawn by the CFTC’s smaller staff and budget compared with the SEC’s, has been jockeying for the agency to get oversight as well—a hope that, if the Lummis-Gillibrand bill is any indication, seems to be an option.