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Senate bill is a step forward for cryptocurrency regulation

As calls for cryptocurrency regulation continue to grow, experts say a bipartisan bill recently proposed by the Senate is paving the way for promising regulatory action.

The Responsible Financial Innovation Act, introduced in June by U.S. Senators Kirsten Gillibrand, DN.Y., and Cynthia Lummis, R-Wyo., establishes definitions of digital assets, creates an advisory committee to develop guiding principles and advising lawmakers on rapidly developing technology; and giving regulatory authority for digital assets to the Commodity Futures Trading Commission (CFTC).

Alma AngottiAlma Angotti

The main uncertainty surrounding the cryptocurrency market has long been definitional, which is why the Senate bill is a positive step for cryptocurrency regulation, said Guidehouse Financial Services Segment Partner Alma Angotti. and Global Head of Legal and Regulatory Risk. Guidehouse is a global market consulting firm.

“This bill does a very good job,” Angotti said. “It’s very thorough; they’re tackling a lot of the uncertainty issues that were problematic.”

Cryptocurrency Regulation Bill Provides Clear Definitions

Angotti said the proposed Cryptocurrency Regulation Bill provides much-needed definitions and clarity for institutions involved in the cryptocurrency market. For example, she said the bill clarifies when digital assets are considered securities and when they are considered commodities.

Securities are typically assets like stocks and bonds, while commodities are things like metals and oil that investors buy early and will deliver at a later date. They are both considered investments and traded on exchanges.

It is very complete; they tackle many of the issues of uncertainty that were problematic.

Alma AngottiPartner, Guidehouse Financial Services Segment, Global Head of Legislative and Regulatory Risk

When determining which digital assets are securities and commodities, the Cryptocurrency Regulation Bill considers the purpose of the digital asset, as well as the power it gives to the consumer, to make the decision. According to the bill, this gives cryptocurrency firms the flexibility to determine what their regulatory obligations will be and at the same time gives regulators clarity when it comes to enforcing existing securities trading laws. securities and raw materials.

The Cryptocurrency Regulation Bill chose to give regulatory authority to the CFTC since digital assets that operate more like commodities, including Bitcoin and Ethereum, make up more than half of the digital asset market. Securities are regulated by the United States Securities and Exchange Commission.

By establishing clear definitions for the cryptocurrency market, Angotti said it allows the regulatory framework to fall into place. The regulations “may not be perfect,” but investors and cryptocurrency companies will know how to operate if the bill becomes law, Angotti said.

“They’ve been working on this for a long time and they seem to want to get it right,” Angotti said.

Cryptocurrency Regulation Bill Still Needs Fine-Tuning

The United States is taking a phased approach to defining the rules for using and trading cryptocurrencies, said Will Cong, an associate professor at Cornell University SC Johnson College of Business.

Will Cong
Will Cong

President Joe Biden’s executive order signed in March calling on the federal government to address the risks and benefits of digital assets and its underlying technology was “paramount,” Cong said.

“It’s an act of coordinating everybody and making it uniform,” he said. “We can’t have too many standards, too many bosses, there has to be a consistent regulatory framework. It’s going to save the economy a huge amount because companies need to know how to stay compliant.”

The cryptocurrency regulatory bill proposed by Gillibrand and Lummis is a “great start” toward establishing those standards for digital assets, but it’s not perfect, Cong said. Ideally, Cong said he would like to see some changes in the bill, especially regarding the issuance of stablecoins.

The bill establishes a 100% reserve requirement, which means that stablecoin holders can always redeem their stablecoins in exchange for the equivalent stable asset value of the stablecoin issuer. Cong said that while this is a good thing, the bill does not touch on other forms of stability measures associated with stablecoins, which he would like to see added to the bill.

“It’s going to set a benchmark that people can build on,” he said of the cryptocurrency regulation bill as a whole. “But I think some parts can be done with more care.”

How Cryptocurrency Regulation Affects Business and Tech Development

Angotti said it could take years and additional efforts such as the development of central bank digital currency before cryptocurrency is widely used by businesses.

While cryptocurrency itself may not yet hold promise for businesses, Angotti said the blockchain technology it is built on has already impacted businesses, from financial institutions to supply chains.

“You see companies using technology to make their lives easier or take advantage of the distributed ledger,” she said.

The cryptocurrency market faces other hurdles, such as the Bank Secrecy Act rule that requires financial institutions to share certain information with a financial institution to which it transfers funds.

The SWIFT network was designed to solve this problem in traditional banking, but nothing similar exists yet for cryptocurrency.

“There have been technology solutions that many exchanges are using. Some haven’t implemented them yet, and there hasn’t been any enforcement action yet,” Angotti said. “But as soon as the technology is readily available, it wouldn’t surprise me if there were enforcement.”

Makenzie Holland is a news writer covering big tech and federal regulation. Before joining TechTarget, she was a generalist journalist for the Wilmington StarNews and crime and education reporter Wabash Plain Dealer.

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