Analysis Crypto Legislation Might Progress Beyond Talk In 2022

Analysis Crypto Legislation Might Progress Beyond Talk In 2022

MABARSPORT - Analysis Crypto Legislation Might Progress Beyond Talk In 2022 - Regulators have spent years trying to apply existing regulations to digital assets. Leading federal regulators and lawmakers began calling for legislation to address these vulnerabilities in 2021. As a consequence, government law may finally address digital asset challenges that have grown since the first Bitcoin block was mined in 2009.

Absence of Legislation on Digital Assets

So far, Congress has left dealing with digital asset challenges to regulatory agencies. The Congressional Blockchain Caucus started in 2016 but few measures addressing digital assets were submitted until 2018. Until October 2021, Congress has not modified federal financial regulatory statutes, which were last extensively altered in 2010 by the Dodd-Frank Act.

Unresolved concerns have caused challenges in the absence of law. For example, digital assets might be classified as securities or commodities, and their classification can change over time. A year after the SEC defined digital tokens as securities in 2017, the SEC and CFTC have failed to explain the difference between securities and commodities for thousands of digital assets.

“We need new Congressional authority to prevent transactions, products, and platforms from sliding through regulatory cracks,” said SEC Chair Gary Gensler in August. A bill is needed, Gensler has contacted Sen. Elizabeth Warren (D-Ma.).

Digital Assets Laws in 2021

While regulators and lawmakers debated the necessity for legislation, House and Senate bills providing specific answers to different challenges discreetly emerged.

Token Sales

Several House bills address securities law impediments to digital token sales, some elaborating on previous regulatory proposals.

Exclusion from security definition. Since 2018, members of the Congressional Blockchain Caucus have introduced measures to remove digital tokens from the definition of a security. These include the Token Taxonomy Act of 2021 (H.R. 1628), which replaces similar proposals from 2018 and 2019, and the Securities Clarity Act of 2020 (H.R. 4451).

Shelter. Two proposals suggested legislative safe harbors for token sales in 2021, including one by SEC Commissioner Hester Peirce. The Clarity for Digital Tokens Act of 2021 (H.R. 5496) was filed by Rep. Patrick McHenry (R-NC), Republican head of the House Financial Services Committee. A new sort of security called a “digital asset security” is defined under the Securities Exchange Act, and issuers of digital asset securities are added to an existing provision for delayed registration.

Desecuritization. In 2018, the SEC's Division of Corporation Finance director explored whether a digital asset may become a security over time. The Beyer bill would apply this notion by amending the Securities Exchange Act to desecuritize digital asset securities.

Stablecoins

Stablecoins, digital currencies pegged to the US dollar or other fiat currencies, have yet to be regulated, despite statements from Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell. The Beyer bill seeks to regulate stablecoins by modifying Title 31 of the United States Code. To be issued or utilized, a “digital asset fiat-based stablecoin” must be approved by Treasury, in cooperation with the Federal Reserve, the SEC, and the CFTC.

This Congress may not give serious attention to any of these suggestions. A flurry of legislation on crypto ransom payments (S. 2666, S. 2923, S. 2926, H.R. 5501) suggests Congress prefers to focus on topics that are more dramatic and less obscure. Moreover, significant sector companies like Coinbase and Andreessen Horowitz are beginning to put out their own regulatory ideas, adding to the obscurity of digital asset regulation.

Digital Dollar versus. Legislation on a central bank digital currency (CBDC) may be prompted by a different source: China.

The People's Bank of China stated in 2021 that their CBDC would be utilized during the Beijing Winter Olympics in February 2022. Republican Senators replied by urging the USOC to ban the use of China's CBDC by US athletes in Beijing and introduced S. 2543, a measure requiring a national security analysis.

The Olympics in Beijing may spur a legislative requirement to establish a digital dollar, which the Federal Reserve is exploring for 2021. Such law has precedents. The Beyer bill contains a clause altering the Federal Reserve Act to permit creating a digital currency, and a measure supported by 46 Republicans (H.R. 4792) requires the Treasury Department to review China's CBDC initiative.

Both parties may embrace a digital dollar. The Covid-19 epidemic made a digital dollar popular in 2020, and House Democrats filed proposals to create one in 2020 and 2021. Bipartisan support for a digital dollar note might emerge from both international and domestic concerns.

In 2022, international competition and bipartisan backing may make the digital currency a key legislative issue. Legislation on a digital currency may pave the way for future consideration of digital asset concerns in 2022 and beyond.

Regulatory & Compliance, Transactions & Contracts, and the Future of the Legal Industry are among the topics covered in our Bloomberg Law 2022 series.

For more information, see our Fintech Compliance site.

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