On March 24, 2022, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) announced that they are working together on legislation to establish a framework for digital asset regulation. They said they plan to introduce the legislation in the coming weeks. The proposal is notable in that it would be the first piece of bipartisan legislation for regulating digital assets introduced in the US Senate.
Regulatory Framework and Key Definitions
In remarks at an event in Washington, D.C., the Senators highlighted their respective memberships on the Senate Banking and Agriculture Committees, stating that the proposed framework would have a role for both the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) in regulating digital assets. Senator Lummis confirmed that, because assets such as Bitcoin and Etherium act as commodities, they would be regulated by the CFTC in the proposed legislation. Senator Gillibrand noted that the proposed legislation would use the Howey test to determine if other assets were a security or a commodity. The two noted that the bill would provide flexibility for other categories of assets since digital assets evolve quickly. Senator Gillibrand added that, since the CFTC would be taking on more responsibility in the bill, the legislation would give the CFTC “more resources” to regulate the crypto market.
Senator Lummis anticipated that the legislation would reform issues present in the infrastructure bill, including changing the definition of broker to “reflect what happens on the ground” in digital asset trading, marking digital assets to the market and changing capital gains rules for digital assets. Senator Lummis added that the legislation would maintain the anonymity of the sender and the recipient of a digital asset transaction.
Senator Lummis also confirmed that the legislation would regulate stablecoins and any potential Central Bank Digital Currency (“CBDC”). Senator Lummis stated that any CBDC would perform the functions of the Federal Reserve, saying that it would facilitate fast, cheap transfers among central banks. Senator Lummis also noted that banks would be the issuers of stablecoins pegged to the US dollar under the new framework.
The bill is still in its early stages. Senator Gillibrand stated that she and Senator Lummis had been working on the bill for about a month, but, through drafting and engagement with stakeholders, they are still uncovering new issues. For example, Senator Gillibrand said that she is considering a disclosure regime on the energy impact of digital asset mining but noted that she only started discussing the proposal with stakeholders on the day before the event. Senator Gillibrand estimated discussions with stakeholders would continue for another few weeks, after which the bill would be formally introduced. Senator Gillibrand anticipated that the bill would go through regular order in the Senate, with hearings and an amendment process in the relevant Committees. Senator Lummis added that the legislation could be separated into distinct bills if further negotiations made separation necessary. Senator Gillibrand said she hopes that Congress would vote on the proposed legislation before the end of the year.