Congress wants to regain power over crypto

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The US crypto sector is going through an identity crisis, which could become existential. Are cryptocurrencies commodities, like gold and pork bellies? Or securities, like stocks and futures? The Securities and Exchange Commission, the Americas’ top financial regulator, is so convinced that cryptocurrencies are the latter that it is suing one of the world’s largest crypto exchanges, Coinbase, for violating securities laws. movables. The SEC has launched an aggressive campaign of regulation by enforcement, suing companies for all manner of alleged violations and insisting that they register with the agency, which crypto firms say is all but impossible.

But another regulator, the Commodity Futures Trading Commission, has also sued one of the biggest players in the industry, Binance, alleging it broke commodity trading laws.

Confusion over what crypto is and who defines its rules has left the industry on edge. On Wednesday, Senators Cynthia Lummis and Kirsten Gillibranda, Republican of Wyoming and Democrat of New York, will respectively unveil a new version of their proposed regulatory regime for the fintech industry, which hopes to address the issue.

While there’s a lot of new stuff in the new Lummis-Gillibrand Responsible Financial Innovation Act, its centerpiece is a measure that would classify most cryptocurrencies as commodities, bringing them under the jurisdiction of the CFTC. This is a clear rebuke to the SEC, which Lummis and others say stifles innovation in fintech.

Domestic industries are really trying to comply, for the most part, and they’re just being pushed around, Lummis says. That is not how we regulate in this country.

The content of the legislation is intended to prevent a repeat of the apparent failures in the crypto industry, which have led to a series of high-profile collapses in the industry over the past two years, which have left many investors with losses.

According to a person familiar with the law, the legislation, if passed, would require crypto exchanges to hold their clients’ assets in third-party trusts and prevent them from trading so-called on their own account, essentially, trading with their clients. own funds on their own exchange. It would also give the CFTC the power to oversee the hardware subsidiaries of exchanges such as Alameda Research, the sister company of the collapsed FTX exchange, whose founder, Sam Bankman-Fried, is awaiting trial for fraud. FTX reportedly lent large amounts of customer funds to Alameda to cover its investment losses, before a liquidity crunch on the exchange led to its downfall.

The law will also limit the re-hypothecation of crypto assets, essentially banning certain profitable but risky crypto services such as staking and will impose standards on new tokens before they are listed on exchanges, the person said.

The SEC and other agencies have been consulted on the content of the legislation, according to Lummis, who still fears they are trying to kill the measure. They saw it. We asked them to modify it and we incorporated some of their changes, she says. After all our efforts to reach them and work with them, I don’t want them coming at the last minute to put their holocaust on it.

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