U.S. lawmakers within the House Financial Services Committee and the House Agriculture Committee have proposed a draft bill that would provide certain crypto assets a pathway to becoming labeled a digital commodity.
The bill, which was published on June 2, focuses on crypto market structure and tackles one of the hottest topics in the crypto industry — whether crypto assets are commodities or securities. The bill presents a middleground with a framework that enables digital assets, which at one point could have been viewed as a security, to now qualify as a commodity if they are able to show that their blockchain is sufficiently decentralized. The Securities and Exchange Commission (SEC) would need to provide a “detailed analysis” to any objections that the blockchain is not sufficiently decentralized.
The blockchain network in question would need to meet certain requirements to prove that it is indeed decentralized, including showing that during the past 12 months a single person hasn’t had the authority to “control or materially alter” the network and that no individual or company owns more than 20% of the network’s token. The SEC would have 30 days to object to the decentralization claims.
The draft proposal was introduced by the Republican chairs of two key houses, Patrick McHenry, the chair of the House Financial Services Committee, and Glenn Thompson, the chair of the House Agriculture Committee.
Justin Slaughter, the policy director at crypto investment firm Paradigm, said on Twitter that “it’s very rare to see two chairs collaborate like this.”
So, anon, the fact that these two members decided to work together on this bill is very significant. It shows they want to get this passed, are aligned on the goal and the substance, and everyone should take this legislation seriously. 8
— Justin Slaughter (@JBSDC) June 3, 2023
While Coinbase’s chief legal officer Paul Grewal took to Twitter to say that the bill laid “a strong foundation for regulatory jurisdiction and definitions, BD rules, and consumer protections.”
Coinbase is one of the few crypto companies that has been able to register with the SEC. Many others have reported challenges trying to register with the agency. The bill touches on this thorny subject providing guidance to trading platforms on how to register with the CFTC, the SEC, or both, as well as offering the opportunity to file a provisional registration statement with the agencies.
The bill also calls for studies into DeFi and NFTs and wants to modify existing rules to allow broker-dealers to custody digital assets in certain circumstances.
Paradigm’s Slaughter highlights that the 162-page bill is “an all GOP bill,” so while the bill could pass in the House, where Republicans have the majority, for it to become law it would need “serious Democratic support.”
Democrats and Republicans have struggled to see eye to eye on regulation for stablecoins with each party submitting opposing bills to the House Financial Services Committee. A hearing in mid-May on digital assets highlighted the growing rift between the two parties on the subject.A hearing on the regulation of digital asset spot markets is set to take place next week in the House Agriculture Committee.
