The Senate Agriculture Committee recently released a draft of its section of a long-awaited digital assets market structure law, which is an important step toward advancing institutional and retail use of cryptocurrencies.
The bipartisan discussion draft, unveiled on Monday by Agriculture Chair John Boozman, R-Ark., and Sen. Cory Booker, D-N.J., provides the basis for establishing safeguards for the cryptocurrency business in the United States. It also creates standards for organizations seeking to interact with digital assets ranging from bitcoin and ether to tokenized financial products.
According to Cody Carbone, CEO of the cryptocurrency trade group Digital Chamber, this is the most important framework for how an organization will incorporate digital assets into their operations. It’s similar to the finest possible detailed explanation of the kinds of compliance regulations that they would have to adhere to in order to operate with cryptocurrency.
Here are the five main findings from the discussion draft.
Grants favorable regulatory status to several cryptocurrencies
The legislation designates some of the largest digital assets by market capitalization, such as bitcoin and ether, as “digital commodities,” bringing them within the authority of the Commodity Futures Trading Commission.
This clause eliminates a significant barrier to institutional fiduciaries’ embrace of digital assets, according to Juan Leon, an analyst at crypto-focused asset management Bitwise.
“Compliance and risk departments will finally have a federal statute to point to,” Leon explained. “This changes the internal conversation…” [It also] offers the legal clarity needed to transfer assets into a formal, strategic allocation.
It would also create “a starkly bifurcated market” made up of legal and unregulated tokens, with the former receiving “a massive influx of institutional capital, deep liquidity, and a robust derivatives ecosystem.”
Crypto businesses must separate money and handle conflicts of interest.
The proposal requires cryptocurrency corporations to “establish governance, personnel, and financial resource separation among affiliated entities that perform distinct regulated functions.”
Leon of Bitwise perceives the clause as a challenge to the “all-in-one” business model that is widespread among cryptocurrency exchanges. According to these models, an exchange, broker, custodian, and proprietary trading desk are all combined into a single business.
In other words, Leon believes that digital asset organizations may be obliged to maintain their multiple activities distinct, similar to traditional financial companies. The modification would act as “a foundational pillar for institutional adoption.”
 Increases the CFTC’s ability to oversee digital assets.
The language grants the CFTC new authority, allowing it to collaborate with the Securities and Exchange Commission to issue joint rules on cryptocurrency-related issues.
“There’s a lot more power or authority delegated to the CFTC to have jurisdiction over this industry,” Carbone told reporters.
The decision comes after the SEC for years acted as the primary regulator of digital assets, edging away the CFTC to seize control of the industry.
Permits the CFTC to collect fees.
The proposal requires regulated firms to pay fees to the CFTC. Those fees would be used to register digital commodities exchanges, brokers, and dealers, as well as oversee regulated firms and provide education and outreach.
Creates listing criteria for tokens.
The document urges cryptocurrency exchanges to only allow trade of digital commodities that are “not readily susceptible to manipulation.”
It is a provision that might limit the amount of “rug pulls” and other frauds that are still prevalent in some sectors of the cryptocurrency business, with the purpose of setting standards and increasing market confidence.
What’s next?
The Senate Agriculture Committee’s discussion draft is far from final, but it does provide vital insights into the path of attempts to adopt crypto-friendly policies in the United States, according to Carbone.
“It’s not final, it’s not done, but this gives a good sense of where Congress is going and what the final rules may be,” Carbone told.
The committee will most likely spend the next several weeks soliciting input on its draft, making it “almost impossible to get [a final version of this part of the bill] done by the end of the year,” he said.
However, that time frame will allow lawmakers to provide more specific instructions on numerous matters that are bracketed – or not yet decided – in the discussion draft. These include measures for anti-money laundering laws and regulations applicable to decentralized financial actors.
Several crypto players intend to collaborate with politicians to help smooth out these aspects, among others.
Moonpay President Keith Grossman told that crypto has long been a bipartisan topic, and this draft from Chairman Boozman and Senator Booker shows that. It is vital that law distinguishes between centralized intermediaries and decentralized systems, and we look forward to collaborating with the Committee to get it right.
According to Carbone, the discussion draft is simply part of a bigger legislative push to revamp crypto sector laws. Finally, the language will be integrated with the Senate Banking Committee’s draft on the organization of digital assets markets to form a single comprehensive bill.
Although politicians are far from finished with that process, crypto businesses are looking for new ways to collaborate with regulators and other authorities in order to truly develop their sector, according to Grayscale Investments’ Chief Legal Officer Craig Salm.
Despite the lack of comprehensive legislation, we’ve seen considerable movement on the regulatory front, Salm added, noting that the SEC, Internal Revenue Service, and Treasury Department have just issued advice on staking in crypto exchange-traded products. “That being said, intelligent legislation will be important to strengthening the basis of the digital asset market in the United States and unlocking even more value for investors and consumers.
