WASHINGTON—A pair of US senators unveiled legislation that would create special exemptions to federal law for some cryptocurrencies, amid an intensive lobbying push by the industry to avoid existing regulations.
Meaning. Cynthia Lummis (R., Wyo.) and Kirsten Gillibrand (D., NY) outlined a bill Tuesday dubbed the Responsible Financial Innovation Act, which aims to create a “complete regulatory framework for digital assets.” In a joint press release, they said it would balance the crypto market’s need for guardrails and consumer protections with a desire to promote financial innovation.
“As this industry continues to grow, it is critical that Congress carefully crafts legislation that promotes innovation while protecting the consumer against bad actors,” Ms. Lummis said.
Ms. Lummis has been the Senate’s most outspoken advocate for cryptocurrency since taking office last year. She reported personally owning between $100,000 and $250,000 of bitcoin in her 2022 financial disclosures.
Congressional aides said the bill has little chance of advancing this year through the Senate, which is controlled by Democrats. Similar legislation introduced by crypto-friendly lawmakers in the House has languished.
Among other objectives, the bill seeks to carve some cryptocurrencies out of the Securities and Exchange Commission’s jurisdiction. It also would create new concepts in the nearly 90-year-old securities laws that would allow issuers of some digital tokens to meet lighter disclosure requirements than public companies face.
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SEC Chairman Gary Gensler has said most cryptocurrencies meet the definition of a security and should register with the agency.
“This legislation would do quite a bit to undermine existing securities laws by creating an alternative route that could bypass the current, time-tested rules,” said Mark Hays, a senior policy analyst on fintech at Americans for Financial Reform, a progressive advocacy group . He added that the bill would create a new class of securities that lack the necessary investor protections.
Cryptocurrency lobbyists have long complained that regulation by the SEC is expensive and onerous, and that the agency has provided insufficient guidance around which assets meet the legal definition of a security. Issuers of digital tokens and trading platforms that allow investors to buy and sell them have declined to register with the SEC and, as a result, are largely unregulated.
Under the Lummis-Gillibrand bill, digital tokens that are sufficiently “decentralized”—a legally murky designation most often associated with bitcoin, the largest cryptocurrency—would be treated as commodities like gold or wheat. The Commodity Futures Trading Commission would be granted new authority to regulate so-called spot markets for such assets. Currently, the agency only has power to oversee derivatives markets for commodities.
“We’re really excited about this bill, and we think it landed in a really, really great place,” said Michelle Bond, chief executive officer of the Association of Digital Asset Markets, a crypto-industry trade group whose members include trading platform FTX. She said the bill would lay the groundwork for future legislative proposals around crypto, even if it doesn’t advance in its current form.
In addition, the bill would establish limitations to a provision in last year’s bipartisan infrastructure law that requires cryptocurrency brokers to furnish certain information to the Internal Revenue Service. It would also shield investors from capital-gains taxes when they use cryptocurrencies to buy goods and services up to $200 per transaction.
It would also allow crypto miners to avoid paying income taxes until they turn the new assets into cash, a favorable tax rule compared with other kinds of property.
“It’s a giant loophole in the tax code,” said Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress.
In a separate initiative, the leaders of the Senate Agriculture Committee, which oversees the CFTC, are working on a bipartisan regulatory framework that would give the agency oversight of cryptocurrencies that aren’t securities, people familiar with the matter said.
—Andrew Ackerman and Richard Rubin contributed to this article.
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