(Part 1 of 2 in our Cryptolegislation Series)
To know where Congress is going, it helps to know where it's been. Cryptocurrency is an increasingly prominent and important issue and this series reviews what Congress has considered in the way of regulating digital assets. Here are the seven major bills proposed prior to 2022. For the more recent legislation, see our follow up blog post.
1. The Token Taxonomy Act (H.R. 1628)
In December of 2018, Rep. Warren Davidson (R) and six cosponsors, three of each party, proposed to exclude cryptocurrency from securities laws altogether by amending the original Securities Act of 1933 and the Securities and Exchange Act of 1934. Presumably, the industry would then fall under the purview of the CFTC (Commodity Futures Trading Commission).
The bill would alter tax laws to make things significantly clearer regarding the legal responsibilities that come with owning cryptoassets and make it tax free to convert crypto to or from cash. It would specifically exclude tokens that represent a financial interest in a company. It would also override almost all State laws concerning crypto, only leaving anti-fraud provisions in place and introducing a uniform regulatory framework across the country.
It’s this last measure that would be the biggest change, as several states have begun passing laws to distinguish their approach to crypto from the national norm. Some states, such as New York, have outlawed bitcoin mining for environmental reasons, for example, while other states like Wyoming have made efforts to create a regulatory environment attractive to businesses in the cryptocurrency industry.
The bill’s introduction saw some concern raised in the cryptocurrency community, with its definition of cryptocurrency decried by one article as both too broad in scope and containing elements that misunderstood the nature of how blockchain technology works. For example, it advised that the act’s stipulation requiring that a digital token’s transaction history “cannot be altered” is arguably an impossible standard to meet and, taken literally, would exclude all tokens.
2. The Cryptocurrency Act of 2020 (H.R. 6154)
Rep. Paul Gosar (R) first introduced this bill on March 9th, 2020. It represents one of the earliest attempts to broker a compromise among the various financial enforcement agencies by breaking up cryptocurrencies into various asset classes and assigning portions of the market to the various institutional players.
The bill would split digital assets into “cryptocommodities” regulated by the CFTC, “cryptocurrency” regulated by the Financial Crimes Enforcement Network and the Office of the Comptroller of the Currency, and “cryptosecurities” under the purview of the SEC (Securities and Exchange Commission).
This “divide up the pie” strategy will likely emerge as the basic structure of whatever solution Congress eventually adopts, as the sheer variety of cryptoassets makes many of them resemble the financial products and instruments under the traditional jurisdiction of each agency far more than they resemble one another simply by virtue of being digital assets or using blockchain technology. The key, as with most things, will be exactly where the statute makes the divisions, what criteria it uses to sort the different assets into new classifications, and with how much clarity.
3. The Stablecoin Classification and Regulation Act of 2020 (H.R. 8827)
Introduced November 30, 2020 by its sponsor, Rep. Tlaib Rashida (D), this bill takes a narrower approach to regulating the industry by ignoring the jurisdictional squabble to focus in on how one particular asset class, Stablecoins, would be regulated.
Stablecoins are cryptocurrency pegged to the value of another currency, commodity or financial instrument. There’s an ongoing debate about who should be allowed to issue stablecoins, with some arguing that only banks should be able to do so while others advocate for a wider group that includes other types of businesses or even individuals.
The bill would restrict the privilege of issuing stablecoins to banking institutions, providing that “Issuers of stablecoins must be a member of the Federal Reserve System, and must seek prior approval from the Federal Reserve, the Federal Deposit Insurance Corporation, and the appropriate banking agency for the offering of stablecoins. Issuers of stablecoins are subject to oversight by the appropriate banking agency, including with respect to capital adequacy, leverage, and permitted activities.” (see text of bill). It would also require said institutions to keep financial reserves capable of covering the value of all outstanding stablecoins.
4. The Securities Clarity Act (H.R. 4451)
First introduced July 16, 2021 by Rep. Tom Emmer (R), this bill had some sponsors from both sides of the aisle and is the first proposed law on our list to be endorsed by Coin Center, the Blockchain Association and the Chamber of Digital Commerce, who have all emerged as voices for the crypto community on Capitol Hill.
It’s a proposed amendment to the Securities Act of 1933 and its successive updates and amendments that would make it so that anything that would not normally be a security does not become one just by virtue of being sold or transferred via an investment contract. It specifically states that this also applies for both disclosure and registration.
5. The Digital Asset Market Structure and Investor Protection Act (H.R. 4741)
First introduced July 28, 2021 by Rep. Donald Beyer (D), this was the next major attempt to divide up the responsibility of overseeing and regulating digital assets between various executive agencies. A lengthy bill with numerous subsections, the proposal resembles the Cryptocurrency Act of 2020, above, in that it attempts to lay down criteria for sorting various classes of digital assets and doling out their management among the CFTC, SEC and Federal Reserve supplemented by other organizations like the Financial Crimes Enforcement Network (FinCEN) and the Federal Deposit Insurance Corporation (FDIC).
As with the Cryptocurrency Act of 2020, the truly important distinctions lie in the fine details here, since the definitions and categories that govern jurisdiction would be responsible for dividing up the pie. A full review is beyond the scope of this blog post, but those interested in at least one way to break up the proposed digital asset classes can review the bill on Congress’s website, linked through the bill's title.
6. The Blockchain Regulatory Certainty Act (H.R. 5045)
First introduced August 17, 2021 by Rep. Tom Emmer (R), this bill is also endorsed by Coin Center, the Blockchain Association, and the Chamber of Digital Commerce.
As much an attempt to clarify existing law as a policy change, this bill would exempt blockchain developers and providers of blockchain services that do not take control of consumer funds from certain financial reporting and licensing requirements. It would exempt developers and providers of blockchain services from being treated as “money transmitters” or “financial institutions” or other similar designations under state and federal law unless they control digital currency to which a third party is entitled.
Many in the crypto community have been vocal about the need for something like this, as under some interpretations of the current laws, just mining some cryptocurrencies could arguably violate regulations meant to apply to financial institutions, regulations that were clearly not meant to cover private parties for the act of running a computer program.
Because even some blockchain technologies that look nothing like financial products or currency are sometimes lumped in with more classical cryptocurrencies like Bitcoin, it's crucial that these regulations be clarified, otherwise they may stifle innovation and punish innocent conduct that lawmakers never intended to outlaw or regulate.
7. The Cryptocurrency Tax Reform Act (H.R. 5083)
Introduced August 23, 2021 by Rep. Darren Soto (D), this act comes down firmly on the side of the SEC in their ongoing tug-of-war with the CFTC over digital finance. Any person who (for consideration) effectuates transfers of digital assets on behalf of another person would be treated as a "broker," requiring them to register with the SEC and triggering a variety of special tax provisions related to securities. It also specifies that digital assets, defined as "a digital representation of value that is recorded on a cryptographically secured distributed ledger," are securities and would have to be reported as such to the IRS.