Bipartisan Efforts to Regulate Digital Assets Gain Momentum
In an unusual display of cooperation, a group of lawmakers from both the Democratic and Republican parties in the House of Representatives has introduced a new piece of legislation aimed at clarifying the regulatory framework for the digital asset market. The proposed legislation, known as the Digital Asset Market Clarity Act, is spearheaded by French Hill (R-Ariz.), the chair of the House Financial Services Committee. The bill has garnered support from key figures such as G.T. Thompson (R-Penn.) and Angie Craig (D-Minn.), who serve as chair and ranking member of the Agriculture Committee, respectively.
Key Provisions of the Bill
One of the significant aspects of this bill is the exclusion of digital commodities sold through investment contracts from being classified as investment contracts. This provision enables issuers to generate digital assets utilizing blockchain smart contracts without the assets themselves needing to comply with investment contract regulations, as long as the sale contract adheres to those rules. Additionally, the legislation exempts the sale offers of investment contracts related to digital commodities from standard security registration requirements, contingent on certain stipulations. Issuers must verify to the Securities and Exchange Commission (SEC) that the blockchain system linked to the sale is sufficiently developed. Furthermore, the bill obligates the SEC to establish rules defining what constitutes a mature blockchain and permits SEC-regulated brokers, dealers, and exchanges to recognize blockchain for their record-keeping obligations.
Defining Regulatory Jurisdiction
Significantly, this legislation grants the SEC authority over digital commodities activities conducted by broker-dealers and exchanges registered with the SEC, which are typically exempt from registration with the Commodity Futures Trading Commission (CFTC). Another noteworthy element of the bill is the establishment of new entities registered with the CFTC, such as Digital Commodity Exchanges, Digital Commodity Dealers, and Digital Commodity Brokers, which would fall under the CFTC’s exclusive jurisdiction for cash or spot market transactions involving these entities.
Clarifying Regulatory Landscape for Crypto Investors
Together, these provisions aim to delineate the jurisdictional boundaries between the SEC and CFTC, addressing a longstanding challenge that has complicated efforts to develop clear regulations for participants in the cryptocurrency market. The bill also includes measures concerning the registration and operation of alternative trading systems (ATSs) that focus on digital commodities and permitted stablecoins, as well as rules for custodial management of digital assets and the regulation of digital commodity brokers and exchanges. Additionally, it addresses how traditional financial institutions should treat digital assets.
Challenges Faced by the Bill
The journey of this bill has been fraught with obstacles. A scheduled joint committee hearing involving the Financial Services and Agriculture committees in early May ended in turmoil when Democratic members, who had previously supported the legislation, abruptly voiced objections following revelations regarding President Trump and his family’s cryptocurrency transactions. This led to a walkout by several committee members, forcing the hearing to be quickly reconfigured as a roundtable to allow for witness testimonies.
Statements from Key Lawmakers
In launching the bill, Financial Services chair Hill emphasized its importance, stating, “Our bill brings long-overdue clarity to the digital asset ecosystem, prioritizes consumer protection and American innovation, and builds off our work in the 118th Congress.” He expressed optimism about advancing the bill to President Trump’s desk to reinforce America’s leadership role in the digital asset space. Meanwhile, Agriculture Committee ranking member Craig highlighted the evolution of digital assets, noting, “Digital assets, including cryptocurrencies, are moving from a unique, novel financial product to becoming more and more integrated with our current financial architecture. I believe it is critical that Congress establish clear protections for consumers and retail investors as well as rules of the road for businesses dealing in digital assets.”
