GOP Representatives in the US House Are Advocating for Cryptocurrency Supervision via Legislation to Encourage the SEC to Cooperate

Crypto exchanges would be given a path to registration with the US Securities and Exchange Commission (SEC) and could trade in one place in digital securities, commodities and stablecoins at the suggestion of the Republican chairs of the two Houses of Representatives Committees attempting to draft a bill to work out.

In the most significant crypto regulatory proposal put forward by Congress this year, the proposed legislation would meet many criteria demanded by the digital asset sector. But the bill, released Friday by chairmen of the House Financial Services Commission and House Agriculture Committee, has yet to garner Democratic support and comes with caveats, including the SEC’s continued power to determine which assets are securities that remain under that agency’s authority would.

On the most pressing issue – how to distinguish what is a commodity and what is a security – the “discussion draft” states that any of the regulated crypto companies dealing with a token or cryptocurrency can argue that the Assets are commodities, but this is the case to explain in detail how they work and to prove that they are indeed decentralized by certifying that no one is running the project or controlling more than 20% of the assets. And the SEC can challenge that claim if it can provide a “detailed analysis” showing the asset falls within its jurisdiction.

For some crypto platforms, however, specifying which band each asset fits into could become less relevant, as an SEC-registered crypto exchange — known as an alternative trading system (ATS) — would have the ability to trade set up in stablecoins and commodities too. So, these platforms would potentially handle all of a crypto investor’s transactions in one place, as long as they also register with the US Commodity Futures Trading Commission (CFTC).

For the CFTC, the bill would introduce a new category of registered entity: a digital commodity exchange where certified crypto commodities would be traded. The new exchanges would have to comply with the agency’s usual safeguards – including full segregation of clients’ assets – and ensure they are not vulnerable to market manipulation. And the agency would have new powers to trade crypto commodities directly, which was also the subject of other bills considered by Congress last year.

Under the current state of US supervision, both the SEC and the CFTC are waging an enforcement battle against crypto companies, including some of the largest trading platforms, and all of the SEC’s crypto-related regulatory efforts have ended up drastically curtailing crypto’s relations with the traditional financial system. While SEC Chairman Gary Gensler insists that existing securities laws are sufficient, the legislation would force him to modernize crypto-specific oversight regulations.

But as a result of negotiations between Rep. Patrick McHenry (RN.C.), Chair of the Finance Committee, and Rep. Glenn “GT” Thompson (R-Pa.), Chair of the Agriculture Committee, this bill does not yet represent the necessary contribution of their democratic colleagues. It is a “discussion draft” meant to start the conversation, according to a senior policy official familiar with the legislation. He said the leaders hoped the Democrats would come up with their own version and the sides could start finding common ground.

Here are some of the other key features of their proposal:

As of this writing, the legislation provides no funding, meaning the SEC and CFTC aren’t getting a fresh pile of money for the huge increase in work – or the large increase in staffing that would likely be required at the Commodity Administration. The people who worked on the bill said they concluded it was better to leave the money discussion to the regular budget process in Congress.

And while the committee staffers have been in touch with colleagues in the Senate, no one can say for sure what Senator Sherrod Brown (D-Ohio), the chair of the Senate Banking Committee, intends to do regarding crypto. Even if the House of Representatives finds a compromise and passes a bill, it still needs approval from the Senate, where a crypto-sceptical Brown has been blunt about his legislative plans.

The bill now becomes part of a much larger negotiation, not just with Democrats in the House and Senate, but also over how it fits in with Congress’ other big crypto effort this year: the dueling bills from the Financial Services Committee of the US House of Representatives for stablecoin legislation, one from each party. Lawmakers on both sides said that tackling oversight of stablecoins, which are typically dollar-pegged tokens that US regulators say could raise greater financial stability concerns, is the first Congressional Crypto Achievement.