Highlights of the Sweeping New Crypto Bill in Congress

The bipartisan bill contains interesting elements that ensure consumer protection and thoughtful innovation, as well as partial self-governance for the crypto industry.

The expansive bipartisan cryptocurrency bill written by U.S. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY), was introduced in the upper chamber of Congress today and is called the Responsible Financial Innovation Act.

"The United States is the global financial leader, and to ensure the next generation of Americans enjoys greater opportunity, it is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk…As this industry continues to grow, it is critical that Congress carefully crafts legislation that promotes innovation while protecting the consumer against bad actors," said lead sponsor Senator Lummis.

Key highlights of the Lummis-Gillibrand bill

The sprawling nature of the bill shows a thoughtful and nuanced understanding of several key features that are unique to the nascent industry, which needs a level of regulation yet also needs room for innovation.The bill in its current form strives to balance several competing priorities while providing workable solutions on many points, which include:

• The IRS classifies cryptos as property, which means that transactions occurring on cryptocurrency exchanges result in a capital gain/or loss. Prior to Lummis-Gillibrand, any exchange of a crypto or token for any type of goods or services triggered a capital gain. The new proposal eliminates any tax on small transactions up to $200 to spur crypto use.
• The bill also establishes a clear standard for determining which digital assets are commodities and what types are securities. Under the bill, cryptos such as Bitcoin and Ethereum, as well as many others, would be classified as commodities by looking at the purpose of the asset and the rights or powers conveyed to the consumer. As commodities -- not securities -- those digital assets would be regulated by the Commodity Futures Trading Commission (CFTC), as would spot exchange traded funds (ETFs) which would be significant drivers of mainstream adoption.
• In light of the recent TerraUSD stablecoin meltdown, Lummis-Gillibrand establishes a 100% reserve for stablecoins, ensuring holders can redeem those cryptos for the pegged asset at any time. The bill also creates a detailed, optional framework for all banks and credit unions to issue payment stablecoins of their own.
• Interestingly, the bill requires the CFTC and Securities and Exchange Commission to research and report on the possible creation of a self-regulatory organization (SRO) for the crypto industry and develop a proposal for establishing such a body. Both agencies would also have to consult with the Treasury and the National Institute of Standards and Technology to develop comprehensive guidance regarding cybersecurity and cryptos.
• The bill also mandates the Federal Energy Regulatory Commission to analyze and report on energy consumption within the digital assets industry.
• Lastly, the proposed legislation requires the Government Accountability Office (GAO) to conduct an analysis of the risks and opportunities associated with investing retirement savings in digital assets and to report its findings to Congress.

What's next for the Responsible Financial Innovation Act?

In its current form, the various provisions are reasonable, sensible, and workable. However, there's no feasible way for the 69-page policy to secure approval before the upcoming midterm election in November, which will determine control of the Senate and House of Representatives. Many lawmakers are politicking for reelection and focusing on major issues that will help them win at the polls. A recent Pew Research Center survey found that crypto regulation was not even in the top 20 issues that voters care about right now.

Most media outlets speculate that it will be at least a year before the bill is signed into law in some form or another. It's also possible that the bill could be broken up into smaller component parts, which could then work their ways through different committees and accelerate passage of certain provisions of the legislation.