No one will be shocked to hear that Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam was unstinting in his praise of a Senate bill that would give his agency a great deal of control over cryptocurrencies.
That long-awaited and bipartisan bill, the Responsible Financial Innovation Act, was introduced Tuesday (June 7) by Sen. Cynthia Lummis of Wyoming and Sen. Kirsten Gillibrand of New York. It aims to create a broad regulatory framework for the crypto industry, including defining what digital assets are, excluding crypto payments under $200 from capital gains tax, and — crucially in Behnam’s estimation — stripping the Securities and Exchange Commission (SEC) of the near-total control of cryptocurrencies it has long claimed.
Saying the senators did “a very good job,” Behnam added, according to Coindesk: “One of the trickiest things we’re going to have to do — and I think they address this very well — is deciphering between a commodity and security.”
Gillibrand explained the bill’s selection in a statement by saying “most digital assets are much more similar to commodities than securities, [so] the bill gives the CFTC clear authority over applicable digital asset spot markets… Digital assets that meet the definition of a commodity, such as bitcoin and ether, which comprise more than half of digital asset market capitalization, will be regulated by the CFTC.”
That undermines the SEC’s position that nearly all cryptocurrencies are securities. Aside from the regulatory oversight — the agency has been encouraging exchanges to follow in Coinbase’s example and register as brokers — it makes every sale of a cryptocurrency reportable as a capital gain. That makes crypto hard to use for small payments, as every cup of coffee would require the buyer to figure out what price was paid for the specific bitcoin used and compare it to the price at that time. The $200 tax exemption would remove that obstacle.
Not that the CFTC is a pushover. It announced June 2 that it is suing the Gemini Trust Company for misleading its staff in its 2017 partnership with the Chicago Board Options exchange over its attempt to launch a then-groundbreaking bitcoin futures contract.
A Gemini Exchange spokesperson told Coindesk it had “an eight-year track record of asking for permission, not forgiveness [from regulators] and always doing the right thing. We look forward to definitively proving this in court.”
New York Takes Lead
In the wake of non-fiat-backed stablecoin’s $45 billion collapse, the Lummis-Gillibrand bill would as require stablecoins to be backed 100% by a reserve of dollars or highly liquid treasuries. That matches a Wednesday (June 8) announcement that the New York Department of Financial Services (NYDFS) is requiring such a reserve.
NYDFS Superintendent Adrienne Harris revealed at a conference this week that she plans to triple the size of the agency’s crypto unit this year.
New York’s legislature also passed a bill banning crypto mining in the state, with the industry lobbying fiercely against it. Gov. Kathy Hochul has not committed to signing it.
The Senate bill would also allow state banks and institutions to issue stablecoin, rather than the federal-bank-only proposed by the President Joe Biden administration last year.
Japan Lays Legal Framework
Japan has passed a bill creating a broader legal framework around stablecoins.
The legislation makes Japan one of the first major economies to pass a stablecoin regulatory framework — something that has jumped up the priority list since the weeklong $45 billion collapse of a stablecoin showed just how susceptible to runs they can be.
The bill requires the issuer to be a licensed bank, registered money transfer agent or trust company. Stablecoins have been declared to be digital money and must be pegged to a currency like the yen or other legal tender. And holders have the right to redeem them at face value.
Call for International Cooperation
The United States has formally jumped onboard the movement to support greater international cooperation in regulation and enforcement of digital assets.
In a report issued Monday (June 6) by U.S. Attorney General Merrick Garland, the Department of Justice (DOJ) said that “although international cooperation has been crucial to overcome obstacles in numerous successful cases involving law enforcement efforts to combat the illicit use of digital assets…, there remain significant challenges.”
It recommended helping other governments build up their crypto tracing capabilities, sharing more information and working together sooner, as well as “promoting more uniform regulation among the U.S. and foreign partners in the digital assets space through implementation of international standards,” notably for anti-money laundering (AML).
That is roughly what everyone from the Financial Action Task Force (FATF) and European Commission to the prime minister of India have been clamoring for all year.
Growing Battle Over Mining
The International Monetary Fund (IMF) recommended that governments looking into blockchain-based central bank digital currencies (CBDCs) avoid energy-intensive, bitcoin-style mining. That is not exactly something any country with even a reasonable environmental lobby needs to be reminded of.
However, the push to ban crypto mining may have gotten a big boost from New York this week, when the legislature sent Hochul a bill that would ban new crypto mining permits for two years.
If signed into law, it would be a precedent-setting piece of legislation in a field that has seen a number of losses — most notably when the European Union beat back a last-minute proposal to ban both mining and the use of energy-intensive cryptocurrencies like bitcoin in payments in March.
While the newly empowered crypto lobbying movement lost there, it is working hard to get Hochul to veto it.
“Other blue states could potentially introduce legislation like this, based on the efforts of the environmental lobby,” John Olsen, a New York representative of the Blockchain Association, told The New York Times Tuesday. “That’s certainly a concern.”
The anti-mining campaign is also getting pushback from human rights organizations, with more than 20 organizations from around the globe signing a letter asking congressional leaders to take an “open-minded, empathetic approach toward monetary tools that are increasingly playing a role in the lives of people facing political repression and economic hardship.”
Crypto Bank Sues Fed
Custodia Bank, a Wyoming-based digital asset bank, is suing the Federal Reserve Bank of Kansas City and the Federal Reserve Board to force them to rule on its application to receive access to the Fed’s Master Account.
It said the “patently unlawful” 19-month delay is hampering its ability to operate effectively.
The bank was launched by Caitlin Long, who led the state’s early — and successful — efforts to attract the crypto industry by putting a regulatory regime in place.
The lawsuit also seeks to force open the decision-making process used by the Fed and the Federal Reserve Bank of Kansas City, complaining that their “method for reviewing master account applications largely remains a black box.”
Read More: Crypto Reg: Behnam Crows as Bill Favors CFTC