Bipartisan bitcoin legislation has finally been introduced by US Senator Cynthia Lumis (R-WY) from the Senate Banking Committee and Kirsten Gillibrand (D-NY) from the Senate Agriculture Committee – months after the effort was first announced.
The law, the Responsible Financial Innovation Act, also known as Lumis-Gillibrand, seeks to encourage “responsible innovation” by integrating digital assets into existing laws and providing greater clarity to an industry that is largely unregulated and normalized. There is a lack of standards and defined measures. The text contains 69 pages of detailed definitions and provisions.
SEC and CFTC: Watchdog
The bill works the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) as lawmakers attempt to bring the broader cryptocurrency space once and for all under the umbrella of specific regulators.
The SEC will regulate digital assets classified as securities while the CFTC will be responsible for overseeing those receiving commodity stamps.
The bill itself contains language that will serve as a guiding assessor for classifying digital assets into one of two classes.
Lummis-Gillibrand proposes an investigation into the rights or powers of the holder of a digital asset, as well as the underlying purpose of that asset.
According to the Bill, a subsidiary asset is an intangible, convertible asset that is given, sold or otherwise provided to a person in connection with the purchase and sale of a security through an arrangement or scheme constituting an investment contract. Is.
The law uses the Howe test to determine whether an ancillary asset provided to a buyer under an investment contract is not an inherently security.
To be classified as a security, the digital asset must offer the holder a debt or equity interest in a business entity, a liquidation right or a right to interest or dividend payments from a business entity, a profit or revenue share in the derived business entity . “Only from the entrepreneurial or managerial efforts of others,” or any other financial interest in the entity.
Digital assets that are not fully decentralized and that benefit from “entrepreneurial and managerial” efforts that determine the value of assets but are not debt or equity or rights of profit or other financial interests in a business entity They are not classified unless disclosures are filed twice a year with the SEC.
The notion that an ancillary property is a commodity can be appealed in court.
The law also gives the CFTC exclusive spot market jurisdiction over all alternative assets that are not securities, including subsidiary assets. Exchanges will be required to register with the CFTC to conduct trading activities and will need to comply with regulations in the areas of custody, customer protection, market manipulation prevention and information-sharing. The agency would be allowed to charge the CFTC a small fee on digital asset exchanges to cover the increased costs.
The CFTC’s assignment to oversee the spot market could help pave the way for bitcoin spot exchange-traded funds (ETFs) in the US because the bulk of the SEC’s argument against it relates to a lack of regulation and reluctance on the spot market. Exchange to work with regulators.
Both the SEC and the CFTC are directed by the bill to study and report on the creation of a self-regulatory organization (SRO) that can play a complementary role in working with regulators in a growing market.
Finally, the Responsible Financial Innovation Act also tasked two watchdogs, in consultation with the Treasury Secretary, to develop a comprehensive set of guidelines for digital asset intermediaries to think about their cyber security, including security operations, risk Includes themes of identification and mitigation. Sanctions avoidance, money laundering and terrorist financing. Agencies are expected to develop rules for such cyber security standards.
energy
Lummis-Gillibrand needs a study on the power consumption of digital assets.
This study will seek to determine the best ways to encourage innovation, while ensuring that these technologies work in conjunction with other sectors of society to reduce the amount of energy waste the world can use by deploying more renewable energy sources and clean energy. help move us closer to climate goals through reducing
This task will be with the Federal Energy Regulatory Commission, which will work in consultation with the CFTC and the SEC to conduct the study. One of its goals is to analyze the type and amount of energy used for mining.
taxes
As previously indicated by Senator Loomis, the law would provide for a tax exemption for capital gains that do not exceed $200 on bitcoin payments for goods and services. This measure encourages the use of digital assets as a medium of exchange. However, the Bill notes that all transactions that are part of a single transaction or a series of related transactions will be treated as a single transaction – and therefore amount to a single capital gains number for tax exemption purposes. .
The bill goes a step further by declaring that miners should not be viewed as brokers, and that digital assets derived from mining activities should not be treated as income unless they are converted into fiat currency. is done.
Additionally, Lummis-Gillibrand also specifies that digital asset lending agreements are generally not taxable events, such as securities lending transactions, and provisions that certain decentralized autonomous organizations (DAOs) are business entities for tax purposes. However, this requires that the DAO be incorporated or organized under the laws of a jurisdiction.
Finally, on the taxation side, the bill requires the US Internal Revenue Service (IRS) to study and clarify issues such as forks and airdrops, merchant acceptance of digital assets, mining and staking, charitable donations and legal characterization of stablecoins .
401(k)
Lummis-Gillibrand required the Government Accountability Office (GAO) to analyze the opportunities and risks associated with investing in digital assets with retirement accounts.
The GAO’s findings have to be reported to Congress, the Treasury Department and the Department of Labor.
consumer Protection
In an effort to increase customer protection in the cryptocurrency markets, the bipartisan bill would require providers of digital assets to disclose information about their products, including source code versions and the legal treatment of each digital asset.
The bill also empowers an individual to own and control their digital assets.
other provisions
Lummis-Gillibrand also includes provisions on stablecoins, such as requiring the issuer to hold US dollars or the dollar equivalent to enable them to be redeemed by the customer at any time; an advisory committee to observe and study the latest developments in space and make recommendations so that the rules remain up to date and valid; and clear definitions for the different types and styles of digital assets and their associated technologies, markets and practices.
the road ahead
Senator Gillibrand said in an interview CNBC On June 7 she thinks the bill is something the Senate will leave behind.
“Our goal is to make sure it goes through the jurisdiction’s four committees,” he Told, “It takes a long time to build a regulatory framework for a new industry.”
Gillibrand continued to say that he expects the bipartisan legislation to pass through the Senate Banking, Agriculture, Intelligence and Financial Services committees before being taken to the Senate floor.
“These committees will have pieces of the bill because they only regulate certain parts of this industry,” she said. “We think there is going to be a lot of momentum behind this bill, have met with most of the industry stakeholders and experts in this area and we are going to work with them over time to continue to improve the bill.”
UPDATE (June 7, 2022 – 8:58 AM EST): Adds the last section – “the road ahead”.
UPDATE (June 7, 2022 – 9:33am EST): The first paragraph of clause “tax” explains capital gains tax exemption.
