Bill To Classify Crypto Assets As Commodities Coming Soon: US Senators

Senators Cynthia Lummis and Kirsten Gillibrand will present an updated version of their crypto bill today, July 12. The reworked “Responsible Financial Innovation Act” seeks to categorize the majority of cryptocurrency assets as commodities, much like gold.

The Securities and Exchange Commission (SEC), which the Senators claim is “stifling innovation in financial technologies,” would no longer have jurisdiction over them as a result of this move; instead, the Commodities Futures Trading Commission (CFTC) would.

The Lummis-Gillibrand bill, a contentious bill sponsored by both parties, aims to close the regulatory gap that underlies the U.S. cryptocurrency market.

The Importance Of The Bill

Concerning digital assets, the Lummis-Gillibrand Act seeks to “provide for responsible financial innovation” while remaining “within the regulatory perimeter.” In sharp contrast to the SEC’s continuing enforcement proceedings, it classifies the majority of cryptocurrencies as commodities under the CFTC’s jurisdiction.

The measure claims to be an effort to stop more unrest in the cryptocurrency industry, which has had several high-profile collapses that have resulted in significant investor losses over the last two years.

“The domestic industries are trying to comply, for the most part, and they’re just getting the cold shoulder. That’s not how we regulate in this country,” Senator Lummis said.

According to a source familiar with the legislation, if passed, it would require cryptocurrency exchanges to place their clients’ assets in third-party trusts and prohibit them from engaging in “proprietary trading,” which is effectively trading with their own money on their exchange, Wired reported.

Furthermore, it would give the CFTC control over “material affiliates” of exchanges, such as Alameda Research, the sister company of the defunct FTX exchange, whose founder, Sam Bankman-Fried, is already facing fraud charges and is awaiting trial. Before the exchange liquidity problem that finally led to Alameda’s bankruptcy, FTX is accused of lending large quantities of client money to Alameda to cover its investment losses. 

Congress To Take Control Back?

The proposal comes at a time when the Republican-controlled House is vehemently hostile to SEC Chairman Gary Gensler. Republicans have even proposed legislation to limit Gensler’s power, including the appointment of a sixth SEC commissioner and the elimination of the chair position entirely. Politicians admit, though, that inaction in Congress has allowed the regulator to act—often unilaterally—on crypto.

Top Republican on the Agriculture Committee, Senator John Boozman of Arkansas says, “The reason [Gensler] is having this opportunity is because Congress hasn’t acted.”

The serious legislative process begins on Wednesday when the Senate introduces its plan. Several committees supervise digital assets, including Banking (on which Lummis serves), Agriculture (one of Gillibrand’s panels), and Finance. The Environmental Committee wishes to have a say in the case. That only applies in the Senate.