The Lummis-Gillibrand Crypto Bill is the Regulatory Certainty Bitcoin Needs

The Lummis-Gillibrand Act: What It Proposes

Also known as the Lummis-Gillibrand Act, the proposed bill is arguably the most positive piece of legislation the US cryptocurrency industry has seen to date. Here’s a summary of its key proposals:

• Establishes that some cryptocurrencies are and will be “ancillary assets,” which in turn are a type of commodity.

As described in the text of the bill, ancillary assets “do not represent securities because they are not debt or equity or do not create rights to profits, liquidation preferences or other financial interests in a business entity.” This holds even if such assets “benefit from entrepreneurial and managerial efforts” that enhance their respective values, meaning that, as well as bitcoin, cryptocurrencies such as XRP and Ethereum would likely be commodities under the terms of the bill.

• Establishes a variety of tax reforms that benefit much of the industry.

This includes a provision to enable holders to spend up to $200 per transaction in cryptocurrency without being subject to capital gains tax, as well as a clarification that cryptocurrencies obtained via mining and staking do not count as taxable income until sold for cash.

• Limits the scope of the definition of ‘broker,’ as previously defined by last year’s infrastructure bill.

• Creates a regulatory framework for stablecoins, including requirements for stablecoin issuers to provide full public disclosure of reserves and to have the ability to meet all outstanding tokens “at par in legal tender.”

• Proposes to establish an advisory committee to monitor the cryptocurrency sector and issue recommendations on future regulations, in accordance with how the sector evolves.

These are the most significant measures, although the bill does make numerous other proposals. Taken together, the two senators responsible for sponsoring it — Republican Cynthia Lummis and Democrat Kirsten Gillibrand — argue that the act will enable the US to continue being a “global financial leader” in the area of fintech in general and cryptocurrencies/blockchain in particular.

“The Responsible Financial Innovation Act, a bipartisan framework that I crafted in conjunction with Senator Kirsten Gillibrand, creates regulatory clarity for agencies charged with supervising digital asset markets, provides a strong, tailored regulatory framework for stablecoins, and integrates digital assets into our existing tax and banking laws.

“I am grateful for Senator Gillibrand’s partnership on this legislation, and I look forward to bringing more of our colleagues into this effort,” said Senator Lummis, who represents Wyoming and already has a history of championing the cryptocurrency industry (as well as buying bitcoin).

Why the Bill Could Be Big for Bitcoin and Crypto

As summarized above, the first measure — to define most cryptocurrencies as commodities — would be massively beneficial for crypto, assuming that the bill does become law.

This is because it would transfer oversight of most of the cryptocurrency market, from the Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC).

Previously, the SEC has pursued — and quite aggressively — legal action against a variety of cryptocurrency companies, with its ongoing case against Ripple being the most notorious. And regardless of whether the SEC or CFTC has primary oversight, the fact that most cryptocurrencies would legally become commodities would mean that the SEC could never charge their overseers with violating securities legislation.

In theory, this would mean that the industry would witness fewer legal cases that send the prices of cryptocurrencies tanking, such as happened with XRP when Ripple and its execs were sued in December 2020. This threat remains very much alive even now, with the SEC currently investigating Binance and the latter’s public sale of BNB tokens in 2017.

Speaking to CNBC, crypto-specialized lawyer Daniel Kahan explained that the shift from the SEC to the CFTC would save the industry from the technicalities of the US securities regulatory regime, which he described as “so prescriptive.”

“There’s a focus on all of these technical elements of the regime around reporting and trading and other things that are not directly tied to fraud … [the CFTC] would be much more appropriate to focus on investor protection and anti-fraud and anti-market-manipulation-type issues rather than on these very technical prescriptive elements of the current securities law regime.”

Will the Bill Be Passed?

As promising as the Lummis-Gillbrand crypto bill is for the industry, opinion is mixed on whether it will actually be passed into law.

For one, staffers working with the two senators have admitted that the bill may be broken into components which will then be passed separately.

Secondly, and more importantly, there already seems to be some opposition to the proposal to move oversight to the CFTC.

“The CFTC is the smallest financial regulator with the smallest budget. Wall Street and its allies in Congress have made sure that the CFTC has been chronically underfunded for years, making it impossible for the CFTC to even fulfill its current responsibilities,” explained Dennis Kelleher, the co-founder of Better Markets and a member of President Biden’s transition, who was also speaking with CNBC.

Indeed, it’s likely that the SEC and its allies in Congress may resist the bill, not least because SEC chair Gary Gensler is on record as saying that most cryptocurrencies are securities. And with opposition from consumer advocacy groups, it’s certainly not a foregone conclusion that the bill will become law. Which means more uncertainty, at least for now…