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Cryptocurrency Bill Aims to Fix Scattershot Regulations, But Misses the Target

By on June 21, 2022 0

The senses. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, DN.Y., introduced the Responsible Financial Innovation Act last week, which aims to eliminate some of the risk regulators have created in the bitcoin space. and cryptocurrency.

The bill aims to more clearly define which cryptocurrencies are securities subject to the supervision of the Securities and Exchange Commission, and which are not, and therefore subject to the supervision of the Commodity Futures Trading Commission.

Given the Securities and Exchange Commission’s instinctive hostility to decentralized digital assets, this distinction is welcome.

The effort is significant as incompetent regulators have today left crypto plagued by scammers and Ponzi schemes as legitimate players fear regulatory risk. While regulators brandish threats, bona fide players stay away, leaving the field open to crooks.

The bill’s delineation was welcomed by many bitcoin supporters, as it would exclude bitcoin from being considered a security. This could reassure financial institutions who have been reluctant to offer bitcoin products until now, potentially bringing more good players into the crypto ecosystem.

In the new cryptocurrency altcoin community, however, many were less enthusiastic, as the bill does little to curb the Securities and Exchange Commission’s overreach through its adventurous interpretation of definitions, giving the commission new powers which it does not currently have.

The Securities and Exchange Commission’s overreach could potentially strangle in the cradle much of today’s decentralized crypto – an industry that could significantly hold individuals accountable to the incumbents of Wall Street and the culture of surveillance, censorship and cancellation that these licensees impose.

That said, the bill has several major flaws that will hopefully be ironed out when it passes through Congress. He has to pass four committees, each with their own negotiations, so a lot can still happen.

First, the bill maintains requirements for crypto users to calculate and report their tax gains and losses on a transaction-by-transaction basis, with a very low reporting threshold of $200. It’s like tallying up your earnings in pesos for every hotel, flight, or dinner voucher during that Cancun vacation.

If such a statement is required, it should be raised to at least $10,000 to match the money laundering thresholds already prevalent in the US financial system.

A second flaw in the bill is a lost opportunity to rein in the Securities and Exchange Commission, rather than expand its jurisdiction. The commission has been one of the most imperial and destructive of our alphabetical soup of financial regulators.

The clearing of 2018’s initial coin offering showed that the Securities and Exchange Commission was only too happy to strangle innovation in the cradle, even by turning a blind eye or slapping cuffs for widespread Wall Street abuses, such as the institutionalized front. or outright fraud. In contrast, the Commodity Futures Trading Commission has been much more aware of the importance of innovation and consumer choice, and the trade-offs involved.

By increasing the Securities and Exchange Commission’s jurisdiction over crypto, particularly in the area of ​​ancillary assets of decentralized networks, this bill risks compounding the problem.

Since the core of the Securities and Exchange Commission’s empire building is the definition of a title, to address this issue, the bill could clearly define a title to replace today’s outdated test , maybe something like: “an instrument that entitles the owner to a return from a joint venture, defined as a reporting entity.

A simple definition could cover common sense securities without giving the Securities and Exchange Commission the green light to prosecute whomever it wants or claim any territory that tickles its fancy.

Despite these shortcomings, the bill proposes several important reforms. It clarifies and increases transparency on cryptocurrency exchanges, stablecoin pools, third-party asset custody and cryptocurrency brokers, as well as more streamlined tax treatment of miners’ income in the cryptocurrency space.

These clarifications could curb the growing number of failing stablecoins, cryptocurrencies allegedly backed by dollars or other assets that actually lack sufficient reserves or lack sufficiently liquid reserves.

Meanwhile, provisions on exchanges could provide more transparency on whether and to what extent exchanges or other cryptocurrency entities manipulate prices to their advantage, which has been a stone’s throw away. stumbling block in approval of a bitcoin cash exchange-traded fund – an important vehicle for regular transactions. people to invest in crypto without having to learn to code.

Ultimately, the bill, introduced on June 6, is a welcome first step in addressing a genuine concern about arbitrary regulators effectively allowing crooks while punishing broader innovation in private currencies and decentralized infrastructure that could protect Americans in this era of inflationary crisis and Big Tech dominance.

Hopefully what comes out the other side of Congress’s sausage factory will be an improvement on the current regulatory regime. If so, we can expect more bona fide players to enter the industry to create bitcoin and other crypto products alongside their gold and dollar offerings.

This could give ordinary Americans more opportunities to protect themselves from inflation or a financial crisis, while improving Americans’ ability to invest and use decentralized protocols without having to ask permission from a bureaucrat or s worry about scammers and fraud.

This piece originally appeared in The Daily Signal