Senators Kirsten Gillibrand and Cynthia Lummis recently introduced a bipartisan draft law whose objective is to bring the “Wild West” digital assets space under the watchful eye of regulators.
Under the proposed law, many digital assets would be regarded as commodities, much like oil and wheat, and the duty of overseeing this market would fall upon the Commodities Futures Trading Commission (CFTC). The two senators said their long-awaited law aimed at availing a regulatory framework through which flexibility, financial innovation, robust protections for consumers and transparency would be promoted in a responsible way that brings digital assets under the ambit of the laws currently in force.
One of the major hallmarks of this proposed legislation is its definition of digital assets. It regards those assets to be “ancillary assets” or fungible, intangible assets that can be offered or sold as a security is sold or bought. Because of this definition, the assets are deemed to be commodities over which the CFTC has regulatory jurisdiction.
However, some assets would be excluded from the categorization of ancillary assets if such digital assets serve the role of a security that a corporation can issue to investors by way of getting the capital the company needs to conduct its activities. In such a case, those digital assets would fall under the regulatory framework of the Securities and Exchange Commission (SEC), especially when the person who acquires such a security can enjoy various privileges, including dividends, other financial interests or liquidation rights.
The framers of this draft law say they took into account the recommendations made by different stakeholders, such as fellow senators (Ron Wyden and Mitch McConnell, for example), the CFTC and SEC.
However, critics of this draft legislation say lobbyists and campaign funds played a role in the formulation of this bill. For example, they say that the choice of the CFTC as the federal authority to regulate the crypto industry wasn’t accidental because the CFTC has been chronically short of funds and could therefore be unable to exercise its regulatory functions over the rapidly evolving cryptocurrency space. Some even equated the inadequacy of the CFTC to a small rural police department being tasked with maintaining law and order in a major jurisdiction such as New York City. Criminals would call the shots, just as cryptocurrency firms will be in charge once the law is passed and oversight responsibility falls upon the CFTC.
The criticism above notwithstanding, the bill is a positive step towards bridging the gaps that exist in the current laws in light of the new developments in the digital assets space. And as sector actors such as Coinbase Global Inc. (NASDAQ: COIN) operate within the regulations governing their activities, the public will be less wary of these technologies, and their adoption will be swift.
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