A bipartisan group of U.S. senators plans to release a long-sought framework for regulating the volatile cryptocurrency market next week amid signs of market chaos.
The group will release the draft for public comment and introduce a formal bill as soon as 30 days afterward, according to Sen. Cynthia Lummis (R-WY), who said she will sponsor the legislation along with Sen. Kirsten Gillibrand (D-NY) and several other senators, joining at least one other crypto bill floating around the Senate, that one introduced by Sen. Pat Toomey (R-PA). At least two other senators, Democrats Ron Wyden of Oregon and Kirsten Sinema of Arizona, are expected to sign on to the Lummis/Gillibrand bill.
Lummis told panelists at an American Enterprise Institute forum Tuesday the draft will include titles defining whether a certain crypto product is a security or a commodity, and thus be regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC); who the fundamental federal regulator will be; what consumer protections should exist for crypto investors; what taxation schemes apply; and how new products should be viewed and regulated.
“We’re going to put it out in draft form for discussion purposes and you can spend 30 days to help us get this bill in as good of a form we possibly can before actually filing it,” Lummis said.
The draft proposal comes amid major chaos in the crypto markets, with several crypto markets crashing and consumers shedding others as contagion spreads throughout the market. Lummis said the proposal could snuff out coins like Terra UST, known as algorithmic stablecoins for the trading mechanism designed to keep their price at a dollar. UST has been the center of the storm this week, with prices crashing to around 10 cents, from the 100-cent peg.
Several regulators are weighing in on the issue this week, including SEC Chairman Gary Gensler, who is before the U.S. House Appropriations Committee Wednesday. The same day, Rostin Behnam, chair of the Commodity Futures Trading Commission, will talk to a FINRA conference about crypto regulation. On Thursday, the U.S. Senate Banking Committee will hold a confirmation hearing for Michael Barr to serve as the top financial regulator at the Federal Reserve, and two new SEC commissioners, Democrat Jaime Lizárraga and Republican Mark Toshiro Uyeda, where the crypto issue is certain to be discussed.
Lummis said regulatory jurisdiction will be a key component of their bill. Some crypto products, such as stablecoins, she said, will be defined as a security and be regulated by the SEC. Others, like Bitcoin or Ethereum, may be defined as commodities and thus regulated by the CFTC. “Consumer protection needs to be in place for both,” said Lummis.
The senators are also discussing what kind of backing stablecoins will need to have, whether backed by assets and how to prevent a run on the products, such as what happened this week to UST.
She said she expects the draft to include a new office of innovation that will be contemplating new crypto innovations that “are being beta tested as we speak.”
“The oversight entity will be drafted to oversee new technologies,” Lummis said. “We can continue to incorporate innovation into the regulatory framework.”
Terra had been the largest “algorithmic” stablecoin, a digital asset designed to always maintain a value of $1 through market incentives rather than backing by cash or securities. Typical stablecoins, such as dollar-pegged Tether and USD Coin, hold liquid assets in reserve.
Terra’s organizers were forced to halt the blockchain, the digital ledger on which transactions are recorded, after the coin fell to about 10 cents last Thursday. The plunge was fast, with billions of dollars in value wiped out within a few days. Some cryptocurrency trading platforms similarly discontinued trading of Terra and its “pair,” Luna, citing the need to protect their customers.