The recent crash in the crypto market has regulators circling. Luckily, pro crypto politicians have been working hard to introduce reasonable crypto regulations to prevent a crackdown on the industry. Now one pro crypto politician who's been working on this is Cynthia Lummis, whose crypto bill reportedly leaked last week. As it turns out, however, it's not all sunshine and rainbows. That's why today I'm going to give you a bit of background about Senator Lummis's Crypto Bill, tell you exactly what it says in simple terms, and consider what it could all mean for the crypto market. I need to give you a disclaimer before I talk about this bill. I am not a financial advisor , I'm just an educator and this blog post is written with the sole purpose of providing you factual information. Please contact a financial advisor if your portfolio has been killed. If you're new here, you might be feeling a little bit lost right My name is "MrCrypt "and I am your crypto geek here at the cryptolibrarynow . I pass on the knowledge of cryptocurrencies, exchanges, DeFi, protocols, NFTS and market analysis are just a few of the topics I tackle on the daily basis. Now enough with the intro. Let's get it on , Let's unpack this crypto bill and see what's in it.
The Crypto Bill -:
Now, if you're unfamiliar with Senator Cynthia Lummis, here's what you need to know. Cynthia Lummis is probably the most pro crypto politician in the United States and possibly the most pro crypto politician in the world. Besides Salvadoran president Nayib Bukele, of course. In late December last year, Cynthia announced her plans to craft a bill that would clarify crypto regulations in the United States once and for all. Shortly afterwards, she teamed up with another US politician named Kirsten Gillibrand to work on the bill. Now this is significant because Cynthia is a member of the Republican Party, whereas Kirsten is a member of the Democrat Party. Now this bipartisan support means it's possible, if not likely, that the bill will eventually pass as it's assumed to have support from both sides of the aisle. Following months of conversations with various regulators, members of the crypto industry and other U.S. politicians, Cynthia and Kirsten released a draft of the bill at the end of May this year and released the finalized version of the bill earlier this month. As you might have guessed, the crypto billd that reportedly leaked was the one by Cynthia and Kirsten. Which is funny because the few pages provided were almost identical to the draft in May. The leak was also met with scrutiny. Whereas the official release of the bill the very next day was met with praise. Now, in any case, the bill is called the "Responsible Financial Innovation Act" , and it was officially presented to other U.S. politicians on the same day the final draft was released, specifically the 7th of June. In this case, Cynthia and Kirsten specified in follow-up interviews that the bill will be presented to four different political committees for deliberation. Once these four political committees have come to an agreement, the crypto bill will be presented to the United States Senate for a vote. If approved, it will be sent to the United States House of Representatives for a vote. If approved again, it will get signed into law by the US President. Now obviously this is all going to take quite a bit of time and the consensus is that this crypto bill will end up on the back burner because of the upcoming midterm elections in the United States. As such, the bill may not become law until sometime early next year, which may actually be good news for some cryptocurrencies. So without further ado, sit back and relax while I unpack what may be the most important crypto bill in existence. As always, I'll give you my thoughts as we go along should any arise.
Different Crypto Definitions According to the Bill-:
The bill begins with definitions for three terms. The first term is commodities, which are assets like precious metals. The bill defines commodities in accordance with another bill, and the TLDR here is that a commodity is any asset that's not as security and whose price changes universally based on supply and demand. Bitcoins BTC is therefore a commodity. The second term is securities, which are assets like stocks. The bill defines securities in accordance with the Howey test and the TLDR there is that a security is any asset whose price action is dependent on the actions of a centralized entity. Many old coins are therefore securities. And the third term is digital asset, which the bill defines as quote a natively electronic asset that confers economic, proprietary or access rights or powers to its holder and is recorded using cryptographically secured distributed Ledger technology, or any similar analog. Naturally, digital assets include all cryptocurrencies, and the bill pays lots of attention to quote payment stable coins, which are defined as quote, a digital asset that is redeemable on demand on a 1 to one basis. For instruments denominated in United States dollars and defined as legal tender. The term legal tender includes U.S. government debt, which happens to be the primary asset backing regulated stable coins like circles, usdc and Paxo's busd. Now logically this means that crypto back stable coins like dye and algorithmic stable coins are not payment stable coins as per the bill's definitions. And in a recent interview, Cynthia and Kirsten specified that some of these non payment stable coins might be classified as securities.
Crypto Tax Calculation According To The Bill -:
After giving a few more definitions for other terms like smart contract and distributed Ledger technology, the bill turns to the second topic and that's the taxation of cryptocurrency. The bill basically says that cryptocurrencies will be taxed under capital gains, not as personal income for anyone wondering, capital gains tax is typically applied only to the gains you made, if any, from investing in cryptocurrency, you don't get taxed on the initial amount you invested. The bill also takes time to address the vague definition of a cryptocurrency broker, which some of you may recall was snuck into the infamous infrastructure bill last summer. The vague definition meant regulators could potentially go after crypto miners, validators and possibly even crypto developers. In this bill, however, the definition of cryptocurrency broker is redefined as quote. Any person who for consideration stands ready in the ordinary course of a trade or business to affect sales of digital assets at the direction of their customers, AKA crypto exchanges and the like, which makes perfect sense. The bill even defines decentralized autonomous organizations, or Daos, and their tax obligations. This is where the point of contention comes in. Because the bill classifieds Daos, as so-called disregarded entities, which, as far as I understand, means that Daos must register with regulators. What's interesting is that the bill states that treasury management, including mining and staking by the Dao as well as raising funds for the Dao, will not count as a business activity under the bill's definitions. I understand this as meaning that these activities are not taxable events, but it's not entirely clear. What's even more interesting is that the bill seems to imply that cryptocurrency forks and airdrops will be classified as taxable events, which could get complicated really quickly. I also don't think the government should be allowed to tax what are ultimately gifts, but hey, maybe that's just me. The bill then goes on to address something you may have seen in the crypto news, and that's fidelity. Allowing people to invest in BTC as part of their pensions. The bill instructs various regulators to do a deep dive into the pros and cons of this move and see if additional regulations are needed there. Regarding mining and staking, the bill specifies that crypto miners and validators will not have to pay any tax on the coins or tokens they earned until they're sold. The way the paragraph is worded suggests this tax exemption applies to taxpayers, which seems to be limited to individuals. Even so, this would still be a massive win for crypto miners and validators in the United States if this bill becomes law. On that note, you can Get the facts about the effects of crypto mining on the climate by checking out our blog post about that using the link below -:
Crypto Mining Impact on Climate Change .
Crypto Securities -:
The third part of the bill deals with the offering of securities, which you'll recall are assets like stocks. Now this section honestly has a lot of legalese, but it seems that the bill makes the following declarations about the sale of securities, which you'll recall, includes most altcoins. First and foremost, if more than 50% of a coin or token supply is being held by individuals and institutions within the United States, then whoever created the coin or token is subject to United States regulations and cannot be classified as a foreign entity. Second, if the average daily trading volume for a coin or token exceeds $5 million per day, and the individual or institution who created it holds more than 10% of that coin or token supply, then the entity behind the crypto project must provide information to regulators. What's nice is that these disclosures won't need to be extremely detailed and will include stuff like basic information about the company behind the crypto project, a brief description of the coin or token, and it's tokenomics, and some information about any affiliated companies, if applicable. What's even nicer is that the bill demands that the Securities and Exchange Commission conducts an in-depth study about the crypto market to determine things like how much investors need to be educated and how regulatory burdens for the companies behind crypto projects can be reduced.
Crypto Commodities -:
The fourth part of the crypto bill concerns the responsible innovation of commodities, which is a not so subtle reference to established cryptocurrencies like BTC and ETH, which Cynthia and Kirsten consider to be commodities. This reminds me of something else, Cynthia and Kirsten said in recent interviews. And that's that they foresee most cryptocurrencies starting out as securities, so like stocks in a company, but transitioning to become commodities like precious metals over time as they decentralize. To that end, this part of the bill focuses on adding digital assets to existing commodities regulations by amending a whole bunch of different sections. More importantly, it gives the commodities and Futures Trading Commission, or CFTC, the power to regulate spot markets for cryptocurrencies like BTC and eth. Now, if I'm not mistaken, the bill also directs all exchanges that allow the trading of cryptocurrencies that are classified as commodities to hold these currencies with a regulated custodian, and that customer funds must be kept separate from exchange funds. Makes sense. What makes slightly less sense, however, is that crypto exchanges will have to register with both the CFTC and the United States Treasury Department as money services businesses, though I suspect that similar rules already apply. Another tricky provision in the bill is that crypto exchanges "permit trading only in assets that are not readily susceptible to manipulation". But However market manipulation is more common than you think, and not just in crypto. So it's going to be interesting to see how regulators interpret this clause in the crypto bill. Another clause that caught my eye relates to emergency actions. Crypto exchanges could take, which include the quote authority to facilitate the liquidation or transfer of open positions in any digital asset, or to suspend or curtail trading in a digital asset. Now call me crazy, but I think this means all the exchange outages and sudden withdrawal pauses will become allowed by law, which is truly bonkers if true, and just goes to show you that you must always keep the coins and tokens. You're not actively trading in your personal crypto wallet. Now, what's a lot saner is the clause that states crypto exchanges cannot sell their users crypto if they go bankrupt. A not so subtle reference to a controversial sentence in Coinbase's earnings report from the first quarter of this year, where it warned that it might do exactly that. If it goes bankrupt now because the government. Has to make some gains, too. The bill states that the CFTC shall collect fees from cryptocurrency exchanges to quote offset the costs of digital asset regulation. There are some concerns that this could in turn increase the already sky high fees on many crypto exchanges. These concerns seem justified, given that the bill sets the ceiling for annual exchange fees at a whopping $30 million. That's the cost of consumer protection, I suppose.
Crypto Standards -:
Speaking of which, the fifth part of the bill pertains to consumer protection and starts with a set of standards for digital assets. This includes stuff like letting people know in advance when an application crypto project or exchange will be undergoing an update, letting people know how exactly they're making money, and lots of stuff. Related to the transparency around the borrowing, lending and saving of cryptocurrencies. The bill also demands that people be made aware of when a cryptocurrency transaction is considered final, and, you'll know that when exchanges consider a crypto deposit as final can vary regardless of the crypto coin or tokens official TPS. Better yet, the bill dedicates a section of this part to the self custody of cryptocurrencies, where it clearly states, except as otherwise required by law, no person shall be required to use an intermediary for the safekeeping of digital assets legally owned and possessed or controlled by that person. In other words, if this bill becomes law, U.S. citizens will have the legal right to hold the keys to their crypto wallets, something which some U.S. politicians are actively trying to prevent.
Stable Coins -:
The sixth part of the bill talks about payment stable coins and gets into the nitty gritty of what laws payment stable coin issuers like Circle and Paxos will need to abide by. For starters, all stable coin tokens in circulation must be 100% backed by U.S. dollars. U.S. government debt or other assets that fall in the same category. I couldn't help but notice that the bill also includes quote any other high quality liquid asset determined to be consistent with safe and sound banking practices as determined by the appropriate federal banking agency or State Bank supervisor as potential backing for a stable coin. Now in theory, this means another cryptocurrency like BTC could someday become the collateral for a payment stable coin, assuming it meets these criteria and is approved by the appropriate regulator. Although this would never happen at the federal level, I could see it happening at the state level. Alternatively, this could be Cynthia and Kirsten setting the groundwork for something else they mentioned in their recent interviews, and that's that they foresee stable coins being backed by wholesale Central bank digital currencies. Now, for context, wholesale CBDC's will be used by select individuals and institutions. Whereas retail CBDC's will be used by regular people. Well, Cynthia and Kirsten are vehemently against retail CBDC's having a stable coin backed by a wholesale CBDC may not end up being all that different in practice, as many of you will know, one of the countries that's currently in the process of rolling out its retail CBDC is China, whose digital yuan is actually addressed in this crypto bill. The bill seems to instruct regulators to set-up the necessary guardrails for the US government to transact in the digital yuan. Now, don't get any silly ideas. This is clearly preparation for cross-border payments between the United States and China involving CBDC's not a confirmation that the. United States will be adopting the digital yuan. Believe me when I say that the United States is committed to the dominance of the US dollar. If you insist on having a silly idea, consider the fact that this part of the bill includes a small section about sanctions compliance of stable coins. Which begs the question of whether it's stable coin holdings could be automatically frozen if they fall into the wrong hands, or even just find their way into the wrong region. If you want fuel for another silly idea, this part of the bill also includes a small section about how the financial crimes and enforcement network, or Finsen, will be in charge of overseeing innovation in the crypto industry and report to politicians and regulators if they see something suspicious. This happens to be where the bill makes the first mention of decentralized finance, which it notes as a specific point of focus for Finsen.
Banks Crypto Adoption -:
Anyhow, the 7th part of the bill is about quote responsible banking innovation, which is essentially code for start adopting these technologies or you'll be put out of business. In all seriousness, the bill says that the existing financial system needs to start integrating with crypto technologies to leverage their efficiency. But I will caution that this doesn't necessarily translate to adopting crypto per say, just a push for financial institutions to adopt distributed Ledger technology. The bill. Also says that regulators need to establish exactly how much information needs to be gathered from people who are using cryptocurrency exchanges to ensure compliance with anti money laundering rules. Yep, those decades old anti money laundering rules that have of course managed to solve money laundering. Similarly, the bill says that regulators need to establish standards for the custody of cryptocurrencies and other digital assets, and are quickly note that crypto custody regulation seems to be one of the preconditions for the approval of a physically backed Bitcoin ETF by the SEC.
DeFi Regulations According to The Bill -:
Now the 8th and final part of the bill is where things start to get really interesting, because it's about the coordination between all the different regulators and how they should turn these plans into action. Buried in all the boring stuff about when all these regulators need to make the changes detailed in the bill lies an instruction to assess whether crypto transactions should be subject to the same money transmission laws as regular currencies, which is likely a reference to the travel rule. As some of you will know, the travel rule requires you to provide information about every transaction above a certain amount to regulators, usually $1000. It should go without saying that this would be next to impossible to do for crypto transactions, especially those involving DEFI protocols. Now this is where the bill finally addresses DeFi protocols and it seems to be quite vague as to what should be done about them. The short of it is that it calls on regulators to coordinate with DeFi developers to better understand this crypto niche so that it can also be regulated. Now the bill also notes quote tangible net worth and permissible investment requirements as one of the things for regulators to examine, which I interpret as the possibility that retail investors will be limited from investing in many altcoins. As is currently the case with other assets deemed too risky. On the bright side, the bill instructs regulators to do a thorough analysis of crypto's energy use and see whether there are ways crypto can be used to optimize or bootstrap current and future renewable energy infrastructure. Last but not least, the bill calls for the establishment of a quote Advisory Committee on Financial Innovation, which will consist of 10 members, six of whom will be appointed by the US President. Now. If that wasn't concerning enough, only two of these Members will be picked from the private sector. Better yet, the composition of this. Committee will change every four years, and none of the 10 committee members will be compensated for their work, just their travel expenses evenly. The convenient consequence of this is that the committee will only cost taxpayers $1,000,000 per year. The silver lining is that it sounds like this committee's powers will be limited to crypto oversight, not enforcement. Knowing governments, though, it's only a matter of time before their powers start to expand and the cost of the committee starts to grow exponentially. That's why some would argue that the world would be better off if governments were replaced by community oriented, decentralised autonomous organisations.
What Does It Mean For Crypto -:
So now for the big question. What does this all mean for cryptocurrency? Well, I'll start by saying that for the most part, what the bill is suggesting is logical, and it's easily the most comprehensive crypto bill to appear in the United States to date. Of course, there are concerns to be had about the regulation of decentralized autonomous organizations and defi protocols, but it's not nearly as overreaching. As the outright bans of Daos and DEFI protocols that many politicians have proposed in recent months. Not only that, but the Daos and DEFI protocols that are truly decentralized should have no real reason to fear this regulation. Nor should NFT projects, given that Cynthia and Kirsten explicitly left out NFTS on the grounds that they're difficult to categorize. Now it looks like Cynthia and Kirsten did something right because the bill has seemingly earned the approval of the crypto industry and politicians from both parties, while simultaneously pissing off SEC Chairman Gary Gensler, who's apparently not a fan of it. This might have something to do with the fact that it's likely to protect most major cryptocurrencies from an SEC crackdown, as they'll be classified as commodities and subject to the much more reasonable regulations of the CFTC. That said, the old coins that aren't classified as commodities could be absolutely destroyed by the SEC. If this bill becomes law, make no mistake, many of them would be immediately delisted from all crypto exchanges and probably slapped with massive fines. In that sense, there's more to be done on the front end of the curve. Because if new cryptocurrencies must start off as securities in the United States, they could have a hard time getting off the ground at all, even with the extremely lax reporting requirements proposed by the bill. Now All in all, this bill is a seriously good start, and Cynthia and Kirsten have emphasized that that's all it's meant to be for the time being. It's going to take months, if not years, for all these regulations to be hammered out, and this bill could look a lot different once it does inevitably become law. This means it could look a lot worse. But it also means it could look a lot better. And given how much the crypto industry has been spending on lobbying these days, my bets are on the latter.That's all for today , about the leaked crypto bill. If you found it informative, let me know by sharing it to as many people as possible who have myths about the crypto bill. If you plan on sticking around for more interesting blogpost like this please pay a visit to cryptolibrarynow by clicking on the link below -:
You can also read my last blogpost on how china crypto mining ban will save the world by clicking on me .
You can also read my article on Biden's Executive Order On Crypto by clicking on me .
As always, thank you for reading this blog post today. I'll be back with more such interesting blogpost as soon as possible .
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