This article discusses the proposed bipartisan US crypto bill of 2022. On June 7, 2022, Sens. Cynthia Lummis and Kirsten Gillibrand introduced legislation that creates the regulatory framework for the crypto industry. The bill is called The Responsible Financial Innovation Act.
The bill clarifies which agencies will be tasked with supervising digital asset markets, provides a clear regulatory framework for stablecoins, and further incorporates digital assets into the existing tax and banking laws.
The bill has not been voted on yet, and when will be put for a vote in the US Congress and whether it will pass is unclear at this time. However, it presents a comprehensive framework for regulating the crypto industry in the US and outlines the main points that have to be addressed in any future legislation regarding digital assets.
Below is a summary of the main provisions of the proposed bipartisan US crypto bill of 2022 – Responsible Financial Innovation Act.
Definitions of Proposed Bipartisan US Crypto Bill 2022
Most importantly, the bill provides definitions for digital asset, virtual currency, payment stablecoins, and smart contracts. The legal definitions for crypto are very important for future legislation and regulation on both Federal and state level.
The bipartisan crypto bill will provide some clarity and relief for participants in the crypto industry if enacted into law. In order to encourage the use of cryptocurrency as means of exchange, the bill introduces an exclusion of up to $200 per transaction from a taxpayer’s gross income if used for the payment for goods or services.
The bill also provides relief for crypto miners and for those who stake their crypto by taxing profits only and if the crypto is sold and converted to fiat currency.
Further tax relief is provided by treating digital asset lending agreements as not generally taxable events, similar to securities lending transactions.
One of the most important provisions of the Responsible Financial Innovation Act is that Decentralized Autonomous Organizations, also known as DAOs, will be treated as businesses for tax purposes and thus be required to properly incorporate or organize under the laws of a state jurisdiction as an LLC, corporation, partnership, foundation, cooperative or similar organization. That will make the world of Decentralized Finance or DeFi more trustworthy and eliminate bad actors from the industry.
Crypto Tokens – Commodities or Securities
For the first time in history, there is an attempt to clear the issue whether cryptocurrencies are securities or commodities and who has the right to regulated them, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).
To accomplish this, the bill states that some tokens are securities, and some are commodities. It does that by examining the rights or powers conveyed to the consumer.
To be classified as a security, a token must provide the holder with a debt or equity interest in a business or right to interest or dividend payments from a business entity, a profit or revenue share in a business entity derived “solely from the entrepreneurial or managerial efforts of others,”. That definition will leave most crypto tokens classified as commodities, including most large cap tokens such as Bitcoin, Ethereum, Binance and Solana.
Stablecoins, are uniquely defined by as neither commodities nor securities, but would still be subject to significant regulation under the act.
The Responsible Financial Innovation Act grants the Commodities Futures Trading Commission (CFTC) instead of the Securities and Exchange Commission (SEC) full jurisdiction over spot markets for fungible tokens.
If enacted, the legislation will enable the creation of a bitcoin spot exchange-traded fund (ETF). Digital asset exchanges, such as Coinbase, Binance, and Crypto.com will have to register with the CFTC in order to conduct business in the United States. This has the potential to be positive for the industry since the CFTC is viewed as a less stringent regulator than the SEC.
Currently, crypto exchanges are required to obtain Money Transmitter Licenses in most states in order to operate. The bipartisan crypto bill will ease the process for obtaining the MTL licenses by requiring state bank supervisors to adopt uniform standards relating to the treatment of digital assets under money transmission laws within 2 years.
In cases where a state has not adopted uniform standards, the Consumer Financial Protection Bureau will have the authority to adopt uniform standards for that state, applying standards that are prevalent in the other states.
Even if not passed, the proposed bipartisan US crypto bill of 2022 has provided a comprehensive blueprint for regulating crypto at the federal level. In that case, it is likely that separate provisions of the Responsible Financial Innovation Act will be found in future legislation.
Malescu Law P.A. – Business & Immigration Lawyers