Main Takeaways from the Crypto Bipartisan Bill by Cynthia Lummis and Kirsten Gillibrand

[TL;DR]

Most cryptocurrencies to be labelled as commodities instead of securities: Why compare cryptocurrencies to the likes of coffee, grains and oil? Turns out there’s a very reasonable explanation - it all comes down to the endgame of this definition, and not a debate on what the term would mean for crypto. While on paper the umbrella term for commodities doesn’t seem to technically align well with cryptocurrencies, both senators have one main goal with this decision; to provide more regulatory oversight to the CFTC.

CFTC to take over most of the regulatory oversight from the SEC: According to the senators responsible for the bill, the CFTC is a much better match for regulatory oversight than the present SEC. Both politicians seem to reason that the commission has a better experience, and availability, to provide consumer protection against fraud and national incentives for the asset class. While cryptocurrencies do seem more similar on paper to securities like stocks, their decentralized and anonymous nature puts them more in touch with commodities in a way, the paper argues.

Crypto transactions of less than $200 dollars will be tax-free: Cynthia Lummis and Kirsten Gillibrand argue that it's fair for American-based crypto exchanges and platforms to not charge taxes for crypto transactions that cost less than 200 dollars. While that certainly sounds great for crypto investors and would cause a market boom in investments and exchange inflows, it raises a whole lot of questions (more about them in the full article below).

Keywords: crypto bipartisan bill, responsible financial innovation act, senator cynthia lummis, senator kirsten gillibrand, cynthia lummis and kirsten gillibrand, tax-free transactions, tax-free crypto, crypto as commodities, digital assets as commodities, CFTC crypto, SEC crypto, crypto executive order

[Full Article]

With great market influence, comes great regulation. That has been the rule for crypto over the past two years, when digital assets and their vertical markets skyrocketed to new levels of popularity and investments during the Covid-19 pandemic. A somewhat lukewarm debate until 2020, cryptocurrencies as a whole recently took the center stage of policy and regulation discussion; with Europe and the United States as the main territories looking to regulate the asset class.

That brings us to the most recent crypto bill; a US bipartisan proposal called “The Responsible Financial Innovation Act,” a 64-page document addressing the livelihood in digital assets from all layers of concerns and possibilities which was released on June 7th of 2022. The bill was written and published by Republican US Senator Cynthia Lummis and Democratic counterpart Kirsten Gillibrand - both well-known names in the sphere of regulatory measures towards innovation.

In this article, we provide a summary of the crypto bipartisan bill by Cynthia Lummis and Kirsten Gillibrand by summarizing the three key takeaways from the document in order of relevance to crypto investors and enthusiasts.


Most cryptocurrencies to be labelled as commodities instead of securities

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The main takeaway from the bill, and one that has already been causing a lot of debate and conflicts within Washington, is to legally label cryptocurrencies as commodities instead of securities - the previous framework set to be adopted.

Commodities are currently considered physical-economic assets that have complete fungibility and can be traded for equivalents regardless of who produced them. Mostly used in agriculture, great examples of commodities are coffee, beef, grains and also oil and gold. Securities, on the other hand, are financial instruments - meaning stocks, bonds, mutual and hedge funds, ETFs, and the list goes on.

It does seem strange, doesn’t it? After all, why compare cryptocurrencies to the likes of coffee, grains and oil? Turns out there’s a very reasonable explanation - it all comes down to the endgame of this definition, and not a debate on what the term would mean for crypto. While on paper the umbrella term for commodities doesn’t seem to technically align well with cryptocurrencies, both senators have one main goal with this decision; to provide more regulatory oversight to the CFTC. This has and will continue to, however, cause greater conflicts within government agencies.

The only exception to this rule is if the purchase of a particular crypto asset also comes with extra rewards paid timely or in portions related to a contract - the best example being dividends in stocks, or perhaps even the launch of an NFT in the future if you’re an Initial Coin Offering (ICO) investor being rewarded for investing. If that’s the case, then the digital asset will be treated as a security.


CFTC to take over most of the regulatory oversight from the SEC

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Since the regulatory debate on cryptocurrencies became more affluent over the past couple of years, two US agencies led the discussion over who should be in charge of what. the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission (SEC). As of June 2022, the SEC has certainly taken the lead over regulatory discussions related to digital assets - especially now with stablecoins receiving the spotlight since the UST/LUNA fiasco and the brief USDT depeg from seller pressure.

According to the senators responsible for the bill, the CFTC is a much better match for regulatory oversight than the present SEC. Both politicians seem to reason that the commission has a better experience, and availability, to provide consumer protection against fraud and national incentives for the asset class. While cryptocurrencies do seem more similar on paper to securities like stocks, their decentralized and anonymous nature puts them more in touch with commodities in a way, the paper argues. The SEC deals with companies, executives, and major-league investors while the CFTC gets to the root of each asset and what makes them valuable or dangerous to investors.

This section of the Innovation Act brings a heavy blow against the SEC for two reasons. Firstly, the SEC is already quite accustomed to dealing with cryptocurrencies over the past two years: several frameworks have been discussed and proposed, and the commission is taking a leading place in Biden’s crypto executive order (although in partnership with the CFTC). Secondly, the SEC’s Chairman is a massive crypto and blockchain expert. Really; prior to his Chair position, Gary Gensler had been teaching Crypto and Blockchain classes at MIT for several years, and always presented himself as a great supporter of the environment. Having the CFTC taking over Gary’s SEC leadership will definitely be a tough pill to swallow, if the bill is approved in its entirety.


Crypto transactions of less than $200 dollars will be tax-free

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Although the previously mentioned portions of the bill are more interesting to crypto investors, this third main takeaway will make the most waves in Washington and perhaps cause an uproar in negligence. We could definitely put this as the main aspect of the bill - except this is not very likely to pass, or more like not at all likely if we’re being honest.

In a nutshell, Cynthia Lummis and Kirsten Gillibrand argue that it's fair for American-based crypto exchanges and platforms to not charge taxes for crypto transactions that cost less than 200 dollars. While that certainly sounds great for crypto investors and would cause a market boom in investments and exchange inflows, it raises a whole lot of questions.

First of all, does that mean an investor is able to breakdown say, a two-thousand dollar transaction into ten transactions of 200 and pay no taxes? When it comes to decentralized applications (dApps) such as UniSwap and TraderJoe, can an investor use the trading history o those platforms to report to the CFTC and get a tax write-off? And what about crypto-to-crypto transactions, what determines their value?

Again, this move would be absolutely massive to attract more crypto investors, but very unlikely. The best-case scenario is the government approving low Capital Gain Taxes (CGT) for the asset class as an incentive for investors - or at least on pair with commodities as a whole. If a $200 transactional tax write-off is approved regarding assets that are largely anonymous, chaos will likely ensue. However, the effort is there and it’s great to see that both senators are just looking to provide positive clarity and incentive into the digital space.






Author: Gate.io Researcher: Victor Bastos

* This article represents only the views of the researcher and does not constitute any investment suggestions.

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