Washington’s latest push on crypto policy: What the industry is saying about the new bills

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Two new crypto bills made their debut in the US House of Representatives and Senate this week. Now the industry is weighing the potential impact as lobbyists speculate on whether the proposed laws will make it out of committee.

It’s been a busy week for crypto on Capitol Hill. Senators opposite have teamed up on a new bill targeting decentralized finance. Meanwhile, a group of House Republicans unveiled a long-awaited market structure bill that aims to strengthen the role of commodity and futures trading commissions in crypto regulation.

Bipartisan push

The Crypto Asset National Security Enhancement Act, introduced Wednesday by Sen. Jack Reed, DR.I., and co-sponsored by Sens. Mark Warner, D-Va., Mike Rounds, RS.D., and Mitt Romney, R-Utah, are all about the DeFi community.

The legislation would effectively prohibit the development of DeFi in the US by mandating centralization, DeFi Education Fund CEO Miller Whitehouse-Levine told Blockworks.

Unfortunately, this approach is not only a disproportionate response to the illicit use of DeFi, but also risks undermining US law enforcement’s existing knowledge and reach of peer-to-peer crypto activity.

The main points of the bill include the requirement that the so-called controller of any DeFi protocol defined in the bill be anyone with the authority to change the code to follow anti-money laundering programs and adhere to know-your-customer (KYC) policies. DeFi protocol monitors would also be responsible for reporting suspicious activity and preventing sanctioned entities from using the protocol.

If no controller can be identified, anyone who invested more than $25 million in the development of the protocol will be liable, the bill says.

The proposal does not provide a viable framework to actually tackle illicit finance in these sectors, the Crypto Council for Innovation wrote in a tweet on Wednesday.

The fact that the bill is a bipartisan effort, particularly focused on bolstering national security, gives it a better chance of getting a floor vote, Hill insiders told Blockworks.

The Reeds bill takes a more personalized approach to regulating the crypto industry, as opposed to other comprehensive bipartisan plans, such as the Responsible Financial Innovation Act, than makes sense. Cynthia Lummis, R-Wyom., and Kristen Gillibrand, DN.Y., reintroduced earlier this month.

Focus on structure

In the House, the Financial Innovation and Technology Act for the 21st Century, introduced Thursday, may be a Republican-only effort for now, but it has critical support from key committees.

Co-sponsors include House Agriculture Committee Chairman Glenn Thompson, R-Pa., Rep. French Hill, R-Ark., and Rep. Dusty Johnson, RS.D. Hill leads the first subcommittee on digital assets, fintech and inclusion, and Johnson leads the subcommittee on commodity markets, digital assets and rural development.

The House Financial Services Committee has already held a hearing on the bill based on a discussion draft released last month.

The latest bill focuses on the division of responsibilities between the Securities and Exchange Commission and the CFTC. The bill grants the latter control over digital commodity markets, including exchanges and brokers.

The legislation also clarifies the classification of digital assets, indicating that the existence of an investment contract alone does not make a token a security. About 70% of all crypto tokens should be classified as commodities rather than securities, placing them under CFTC jurisdiction, the co-sponsors wrote in a fact sheet released with the bill.

The Republican bill creates a more detailed registration process for digital asset brokers, addressing the concerns of many exchanges who have argued that the current process is arbitrary and time-consuming.

Under the current SEC circumstances, the invitation has been repeatedly extended to come in and register, but, like Robinhood, when Coinbase tried to do just that, talk about how we could register after months and months of discussion, we were simply dismissed, Coinbase Chief Legal Officer Paul Grewal told the House Agriculture Committee during a hearing in June.

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