BitOoda Global & Regulatory Analysis, 12/23/2019: New Congressional Proposal Signals Readiness to Act

Happy Holidays from BitOoda!

As the U.S. digital asset market continues to mature from an industry perspective, the question of when and how the country’s regulatory architecture will catch up has lingered in the background. When regulatory issues have taken center stage, it’s typically not because of positive news — on the contrary, we typically hear about new enforcement actions, calls for further studies or a new “task force” (such as the recent report by the Financial Stability Oversight Council), or statements by SEC or political leaders discussing AML risks or concerns about market manipulation. Underlying the questions, complexities, and conservatism behind the U.S. regulatory approach to date has been the absence of a modern legislative foundation that clarifies how U.S. securities and commodities laws apply to digital assets.

Perhaps it is the increasing pace of discussion about the adoption of virtual currencies by foreign governments (e.g. China, the EU, and most recently Iran); perhaps the introduction of Libra has galvanized U.S. politicians into action; or perhaps it is the growing sentiment among U.S. adversaries and allies about the development of an alternative to the dollar as the basis of the global economy. Whatever the reason, there is an accelerating amount of activity within Congress that makes it increasingly likely that regulatory agencies could soon get some help as they attempt to guide the evolution of U.S. markets.

We believe the introduction of the “Crypto-Currency Act of 2020” is the most promising U.S. regulatory development in recent memory. The bill, as described by Forbes, would create a “sweeping regulatory framework for digital assets including cryptocurrencies. … The stated purpose is to clarify which Federal agencies regulate digital assets, [and] to require those agencies to notify the public of any Federal licenses, certifications, or registrations required to create or trade in such assets.” In our view, this is precisely the type of law that could enable executive branch agencies to not only better coordinate their efforts, but also to move beyond the 1930’s laws to which they are currently tied in terms of interpretation and application to digital assets.

This umbrella proposal adds to other acts introduced this year, including:

• The Managed Stablecoins are Securities Act,” which would amend the definition of “security” within the Securities Act.
• The CFTC Reauthorization Act, which calls for dedicated rules for crypto derivative products.
• The Token Taxonomy Act and Digital Taxonomy Act, which were reintroduced this year as attempts to clarify the legal standing of digital assets.
• The Blockchain Promotion Act, the U.S. Virtual Currency Market and Regulatory Competitiveness Act, and the Virtual Currency Consumer Protection Act, which are intended to develop fair and transparent U.S. markets and promote U.S. global leadership in the blockchain and digital asset space.

We recognize the reality of politics in Washington and are not naïve enough to start counting the days until Congress gives regulatory agencies the tools they need to put the U.S. on a better path. However, we are encouraged by the pace of congressional engagement, and specifically by the proposed Crypto Act as a potential source for answers to some of the more vexing questions (asset definitions, regulatory jurisdictions, and industry governance requirements) facing markets today