Source: United States House of Representatives – Congressman Glenn Thompson (5th District Pennsylvania)
WASHINGTON — Lawmakers want to clarify how cryptocurrencies are regulated by the federal government, and the latest push is spearheaded by rural Pennsylvania’s ranking Republican on the U.S. House Agriculture Committee.
Rep. Glenn Thompson, R-Centre, introduced a blueprint last week on how digital commodity markets should be regulated, an issue gnawing at the industry as the government tries to apply older traditional banking frameworks to the 21st-century digital representations of value.
Many types and forms of cryptocurrencies exist, Bitcoin being the most popular and the first digital currency created in the aftermath of the 2008 economic crisis; others include Ethereum, Solana, XRP and Litecoin. Transactions are recorded on a decentralized digital ledger, called a blockchain. Some of the tokens store value, but others can be the so-called fuel behind bigger crypto-networks on which innovators or software developers can build projects and applications.
The global market for the digital tokens hit an all-time high of $2.8 trillion earlier this month, according to the Washington-based Chamber of Digital Commerce. About $600 billion of that was attributed to the U.S. as of June. Just over one in 10 Americans have invested in cryptocurrencies, most who are under age 40 and do not have a college degree, according to a University of Chicago study released in July.
The Digital Commodities Exchange Act of 2021, still in draft form, would draw lines around activities involving the digital currencies, categorizing them as either commodities or securities — and therefore determining which government agency would have authority.
The House Agriculture Committee oversees commodity markets and the activities of the Commodity Futures Trading Commission.
Some advocates of digital currency argue that securities laws administered by the Securities & Exchange Commission aren’t quite the right fit for the new financial frontier. The SEC, among its duties, regulates the public trading of stocks, bonds and other investments that often carry the expectation of future profit.
“If you buy Apple stock today, there’s a company called Apple that provides reports to the SEC so that investors know what the plan is, what their finances are, but if you look at something like Ethereum, for example, that’s a giant supercomputer that’s powering a bunch of economic activity, but there’s no one central entity to do the kind of disclosures that are required,” said Kristin Smith, executive director of the Washington-based Blockchain Association. “…This type of transacting that happens online requires fresh thinking.”
A different way to provide consumer protection and ensure market integrity is needed, said Ms. Smith, whose organization represents 65 cryptocurrency companies.
Currently the cash-for-crypto transactions are subject to a state-by-state money transmitter license regime — think: Western Union.
“It’s not designed to have oversight over fast-trading in electronic markets,” said Ms. Smith, who called the Agriculture Committee’s draft bill “a welcome part of the discussion.”
Mr. Thompson’s plan envisions a “collaborative, flexible process” for the trading of existing and new “digital commodities” on exchanges that would be registered with and regulated by the Commodity Futures Trading Commission, according to a summary published in mid-November.
“Digital commodities have the potential to bring unprecedented change to the way we share information, exchange value, and design digital services,” Mr. Thompson said in a statement to the Pittsburgh Post-Gazette. “But, these innovations are not inevitable. Poorly designed laws and legacy requirements could make it impossible for innovation.”
The government’s vague guidance “doesn’t give you confidence as an innovator to bring new services and products to market with speed because you don’t want to get in trouble,” said Teana Baker-Taylor, chief policy officer for the Digital Chamber of Commerce.
“A clear definition around what is a security and what isn’t is still completely lacking, and that creates a lot of regulatory tensions for businesses trying to come to new products and services,” Ms. Baker-Taylor said speaking by phone from the organization’s London office.
It’s reasonable for the SEC to have domain over certain activities, she said, including digital tokens used for investing in projects, much like buying a share of a company’s stock, or services exchanging government-issued money to crypto money, which must undergo money laundering checks. However, some tokens contain information, not monetary value.
That’s why treating cryptocurrency as a commodity “would probably make sense,” Ms. Smith said.
Mr. Thompson circulated a letter asking for support from Congress to work together to establish “clearly defined rules.” A draft of the bill can be found here.
If introduced, this will be the second time Mr. Thompson and the Agriculture Committee attempted the write the new rules.
The Securities and Exchange Commission declined to comment.
Toomey’s two cents
Another Pennsylvania lawmaker with an interest in cryptocurrency is also fighting for clarity around regulation of the digital sphere.
An aide to U.S. Sen. Pat Toomey this week said the lawmaker is continuing his efforts to change language in the recently passed Infrastructure and Investment Jobs Act that broadly defines who must report cryptocurrency activity to the Internal Revenue Service.
A bipartisan amendment introduced by Mr. Toomey, Sen. Ron Wyden, D-Ore., and Sen. Cynthia Lummis, R-Wyo., clarifying the definition was quashed in August.
As the law stands, a wide swath of people now considered to be brokers, including miners and software developers, must file 1099 forms with the IRS and customers.
“That makes for companies that have a bunch of customers, but the problem is they define broker to be so broad that it includes different people that are participating in the upkeep of these networks that they don’t necessarily have customers.,” Ms. Smith said. “They’re sort of like the armored car that’s moving money from one bank to another at the end of the day. Those people don’t know who the money and the car belongs to, they’re just part of the operation.”