“The work we’re doing is going to be a very complex and intensive review of the different aspects of this industry — some parts will be regulated by the [Commodity Futures Trading Commission], some parts will be regulated under the [Securities and Exchange Commission],” Gillibrand said.
If Gillibrand, a New York Democrat, and Lummis, a Wyoming Republican, succeed in hammering out the details, it would mark the first major bipartisan attempt to create a comprehensive framework for the U.S.’s regulation of crypto markets and other digital assets. Previous legislative efforts have been limited in scope or have broken along party lines.
“Many of the goals that Sen. Lummis and I have are identical — we want to address things like safety and soundness, we want to address consumer protections, we want to address certainty for markets,” Gillibrand said.
Existing oversight of crypto markets and service providers has fallen to an array of federal and state agencies, a system that has confused industry players and policymakers alike. That has been further complicated by surging interest in decentralized trading platforms and newer crypto assets – everything from non-fungible tokens to stablecoins – that aren’t governed by a clear set of rules and regulations.
“The federal government is catching up” to states, Lummis said. ”In the last year. I can’t tell you how big a change there is in the interest of Congress in this issue, in the advancement of the industry in beginning to help inform about what they need in terms of a regulatory framework and how government can be helpful to that, allowing for a sandbox of innovation that still has regulatory sideboards. That’s the sweet spot that Sen. Gillibrand and I are trying to create.”
Lummis has been teasing the release of a comprehensive bill covering regulation for several months. Wyoming has been angling to be a hub for crypto companies, and Lummis – who began purchasing Bitcoin in 2013 – has long been considered an ally to the industry. She played a central role in the fight over crypto tax language that was included in the $550 billion infrastructure bill signed by President Joe Biden last year.
Earlier this month, Biden signed an executive order demanding a whole-of-government assessment of U.S. crypto policies, citing the need to encourage innovation and address vulnerabilities around investor and consumer protection – as well as national security.
A growing number of Senate Democrats view the latter as a major concern in light of Russia’s war on Ukraine. While federal agencies have largely downplayed the likelihood that Russian institutions would dive into the nearly $2 trillion market, a group of 10 Democrats led by Sen. Elizabeth Warren of Massachusetts have introduced legislation that would give the Treasury Department the authority to block crypto exchanges from transacting with Russian addresses and force U.S. crypto holders to disclose their offshore transactions in excess of $10,000.
Lummis pushed back on fears of cryptocurrencies being used to evade sanctions.
“It’s easier to track and freeze digital assets than it is to track dollars,” she said. “Right now, Russia doesn’t have the immediate capacity to prevent the imposition of sanctions by using digital assets and Bitcoin.”
An area where the lawmakers are in agreement is conferring the CFTC with more authority to oversee crypto spot markets, giving the derivatives regulator greater sway in areas where SEC Chair Gary Gensler has asserted that his agency should take lead. Gensler led the commodities regulator during the Obama administration.
The senators said they planned to include language that would create a system for classifying digital assets as securities or commodities — or another category entirely — saying that crypto markets tend to evolve quickly. Other provisions would potentially address issues around cybersecurity, banking regulation, consumer protection and stablecoins.
It may be more difficult to address other key aspects of crypto regulation.
Notably, Gillibrand raised alarms at the degree to which proof-of-work mining — the process used to verify Bitcoin transactions — could be hastening climate change or contributing to environmental disasters. Lummis posited that the adoption of digital assets could speed the advance of cleaner energy sources and capture excess energy that would have gone to waste.
“I’m really optimistic,” Lummis said, adding that the two senators have had trouble finding things they don’t agree on. “We’re looking forward to rolling out a piece of legislation.”
The lawmakers said they hope to introduce the bill in the coming weeks.