What newly proposed crypto regulations would mean to investors

Posted: 7 June 2022 6:11 pm
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Under the Responsible Financial Innovation Act, Sen. Gillibrand (D-NY) and Sen. Lummis (R-WY) propose that commodities regulators will oversee digital assets. Here’s what that means to crypto buyers and owners.

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With crypto in the news for so many negative reasons lately, it’s nice to see it doing something positive: spurring bipartisan efforts in the US Senate that may help to protect digital-asset investors.

Today, Sen. Kirsten Gillibrand, a Democrat from New York, and Sen. Cynthia Lummis, a Republican from Wyoming unveiled the Responsible Financial Innovation Act.

The bill proposes a regulatory framework that would classify most digital assets as commodities, putting them under the purview of the Commodity Futures Trading Commission (CFTC)– not the Securities and Exchange Commission (SEC).

Snubbing SEC Chair Gensler

This is significant as SEC chair Gary Gensler has suggested that most digital assets should be classified as securities.

The crypto community was mostly fond of Gensler at first, as he taught a course entitled “Blockchain and Money” at the Massachusetts Institute of Technology (MIT) and most in the community felt that they had an ally in Gensler.

Gensler has been proven to be anything but an ally, though, as he has taken tough action against centralized finance (CeFi) crypto companies like BlockFi, without providing the crypto industry with much guidance for how to offer crypto-related financial products and services moving forward.

Those in the crypto space who are still distrustful of Gensler will likely cheer this proposal to reduce his power to oversee the crypto industry.

Protecting Investors

The bill proposes that the CFTC regulates crypto spot markets in a fashion similar to the way it regulates other commodity markets.

Properly regulating crypto exchanges is essential for consumer protection, as these marketplaces – the on and off ramps for crypto – are the main points for these assets to be regulated, as the blockchain on which these assets exist cannot be directly regulated.

The bill also aims to protect stablecoin users. It proposes that stablecoins be 100% backed by reserves (e.g., actual US Dollars) and that stablecoin issuers are required to provide disclosure on their reserve asset holdings. Such a provision ensures that stablecoin users can redeem their tokenized dollars for actual dollars.

Also, the bill requires that digital asset service providers educate their consumers about the services and assets that they purvey.

Moving Forward

Gillibrand stated that she hopes to get votes on the bill by early next year.

Long term, more regulation may result in greater price stability in the asset class.

For now, though, crypto markets – much like traditional asset markets – continue to be at the mercy of the Fed’s quantitative tightening measures and efforts to fight inflation..

Hopefully, some regulatory certainty that may come from this bill may help to counter some of the uncertainty that revolves around Fed policy and the volatility it has caused in the prices of crypto assets.

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Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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