U.S. legislators have been stepping up their efforts to provide the crypto industry with a regulatory framework. A new bipartisan bill introduced by U.S. Senators Debbie Stabenow, John Boozman, Cory Booker, and John Thune is another step in that direction.
The legislators introduced the Digital Commodities Consumer Protection Act of 2022 and presented a new regulatory term: digital commodities. These assets will be under the jurisdiction of the U.S. Commodities Futures Trading Commission (CFTC).
This regulator will have the “authority to regulate the trading of digital commodities”, introduce rules for market participants, and enforce them. The bill proposes that “digital commodity platforms” will need to comply with the “same standards as traditional financial institutions”.
Cryptocurrencies have often been dismissed by legislators, and regulators, and classified as illegitimate assets. This new bill seems to acknowledge the role of digital assets and suggests that they should be regulated as other assets in the legacy financial system.
Senator Stabenow said the following about the potential implications for this act and why they felt compelled to reduce the regulatory “gaps” in the country:
One in five Americans have used or traded digital assets—but these markets lack the transparency and accountability that they expect from our financial system. Too often, this puts Americans’ hard-earned money at risk. That’s why we are closing regulatory gaps and requiring that these markets operate under straightforward rules that protect customers and keep our financial system safe.
In the crypto industry, companies have been asking for regulatory clarity and a legal framework to operate under U.S. rules. The CFTC seems more inclined to have a conversation with companies in the sector as opposed to the Securities and Exchange Commission (SEC).
The Gary Gensler-led regulator has been exercising a mandate by “enforcement” as actors believe that their practices are inconsistent with their speech. The SEC has invited crypto companies to report and participate in a dialogue, but these efforts have been met with legal actions.
SEC Commissioner Hester Peirce believes the regulator has decided to shift its approach from “careful and considered” in favor of “effecting hasty and sweeping change”. This often leads companies in the digital asset sector to try to catch up with the SEC.
Why The Crypto Industry Needs Federal Regulations
The Senators believe U.S. crypto investors need a federal regulatory framework, especially as the sector continues to expand. Otherwise, the legislators believe that state-level regulations might not “ensure” consumer protection.
The bill will demand companies to register with CFTC, prevent “abusive trading practices”, integrate “advertising standards, disclose” information about the potential risk of trading with digital commodities”, and more.
U.S. Senator Boozman added the following on the growing relevance of digital assets and their potential impact on the financial sector:
Digital assets and blockchain technology have already, and will continue, to change the way global markets function. Yet, this fast-growing industry is currently governed largely by a patchwork of regulations at the state level. That simply is not an effective way to protect consumers from fraud.
Sam Bankman Fried (SBF) CEO at major crypto exchange FTX welcomed the legislation and celebrated the efforts announced by the U.S. Senators. Via Twitter, he called the bill a “strong” attempt to “provide clear federal oversight” for the nascent asset class.
However, crypto users noted that the bill will require companies to register with the CFTC, and the lack of clarity around the term “digital commodity”, which cryptocurrencies will be regulated by the CFTC and which by the SEC?
2/ in brief: the bill would call for mandatory CFTC registration & supervision of “digital commodity platforms.” It’s similar to House DCEA & our 2018 call for CFTC alternative to state MTL. But we remain concerned about overbreadth/unintended effect on devs & users.
— Peter Van Valkenburgh (@valkenburgh) August 3, 2022