A bill concerning digital currencies may be introduced before the US presidential election in November 2024. This draft bill, which has no official name yet, may be called the “Digital Asset Market Structure Act” and covers many key issues.
Completing this work before the presidential election is crucial, as the two parties become more polarized as the election approaches, making it increasingly difficult to pass the bill. Two years ago, there was no clear difference between Democrats and Republicans on issues such as digital assets and Bitcoin, and it was unclear which party was particularly supportive or opposed. However, in the past year or two, the Republican party has become increasingly supportive of the development of digital assets, while the Democratic party, under the leadership of Elizabeth Warren and the SEC chairman, holds a negative attitude towards the development of digital assets.
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On June 6, the day the SEC sued Coinbase, the SEC chairman publicly stated that the United States does not need more digital currencies because it already has a digital currency in the US dollar. This is the first time he has expressed this opinion so explicitly, with his previous statements being more ambiguous. He said that he can only accept Bitcoin at most, and that stablecoins and Ethereum do not need to exist. The US dollar will always be the world’s number one currency. The draft of the Digital Asset Market Structure Act was completed at the end of May, and a hearing on this draft was held on June 6 to listen to many opinions.
What was discussed at the hearing?
Bernie Sanders, a seasoned member of the House of Representatives, has been in politics for over 40 years and is 84 years old this year. He has long fought for the interests of low-income people and is highly respected. Although he does not have a favorable view of digital assets, he still believes that the United States needs a bill on digital assets to prevent events like FTX from happening again. He is concerned that the bill is biased towards the CFTC and may reduce the SEC’s power, so he wrote a letter to the SEC chairman asking about the impact of the bill on regulatory scope and for suggestions on the bill. At the same time, he also wrote a letter to US Treasury Secretary Yellen asking about the impact of the bill on the stability of the US financial system and whether there is a conflict with the policies of the US Treasury and the Financial Stability Oversight Council.
The letter was sent last Friday with the hope of receiving a response by this Friday. However, the SEC chairman and Yellen are both very busy and the draft is 162 pages long, making it difficult for them to provide a detailed response in a short amount of time. This urgent situation is due to the upcoming July 4th Independence Day holiday, during which lawmakers will take a few days off. The chairman of the Financial Services Committee hopes to have the draft passed internally before the full House vote in the second week of July. The two lawmakers who drafted the bill are working hard to secure support from a majority of the House.
The House is controlled by Republicans, so the bill has a chance of passing. However, the situation is more complicated in the Democratic-controlled Senate. Two senators who support the development of digital assets have temporarily set aside their own proposal and are now fully supporting the House-drafted bill. They need to garner more support in the Senate, which could drag on until next year.
After the bill is passed in the House, the Senate will review and revise it. Then, the Senate and the House will negotiate and come up with a final version to be submitted to the President for signature. The bill will become law only after it is signed by the President. This process could take several months, or even extend into the 2024 US presidential election.
Now let’s take a look at the main contents of the draft:
The draft is divided into four main parts:
Part One: Various important definitions, SEC and CFTC to jointly formulate rules and temporary registration system.
- Includes the definition of blockchain,
- the definition of blockchain network,
- the definition of blockchain protocol,
- the definition of decentralized network,
- the definition of decentralized institution,
- the definition of digital assets,
- the definition of digital asset issuer,
- the definition of digital asset maturity date,
- the definition of digital commodity,
- the definition of decentralized end users,
- the definition of functional blockchain network,
- the definition of payment stablecoin.
Part Two: Exemptions for digital assets
The exemption for digital assets is about a type of digital asset that is not subject to the constraints of existing securities laws, and there are many contents inside it, which can be summarized into four items.
- The total amount of digital assets sold by the issuer in the past 12 months does not exceed $75 million.
- A non-qualified investor refers to a person with a relatively low income and asset level. The digital assets purchased by them in the past 12 months must be less than an amount, which cannot be too much due to the risk involved. The amount is the larger of 5% of the buyer’s annual income and 5% of the buyer’s total assets. In other words, the digital assets purchased in the past 12 months must be less than the larger of these two numbers.
- A single buyer cannot hold more than 10% of the total digital assets. Holding too much may lead to centralization risks.
- The traded assets are not stocks or bonds.
If these four conditions are met and the issuer and intermediary institution submit the required documents to the regulatory authority on time according to the draft rules, then the digital assets will be considered exempted and therefore subject to relatively relaxed regulation. This gives the issuer a buffer period and enough time to develop a project. However, a new disclosure mechanism has also been established specifically for digital asset issuers to inform them of what materials need to be prepared for the public.
In addition, if the issuer believes that their project is decentralized enough, they can apply for decentralization certification from the regulatory authority. With this certification, it is easier to be recognized as a commodity. Decentralization certification is not the only condition, but it is the most important one. Another condition is that the blockchain network is a functional network. It refers to the functions of value storage and community governance, rather than an agreement between the issuer and the holder to distribute dividends.
Three, how digital asset intermediaries register with the SEC and CFTC.
Various digital asset intermediaries have to register with the regulatory authorities, and there are many details involved. The most important thing is that payment-type stablecoins and commodity-type digital assets do not need to do this. There are many types of stablecoins, such as USDC, which are used for payment and are not regulated by the regulatory authorities.
The various digital asset intermediaries have to register with the CFTC. This gives the CFTC new jurisdiction and allows digital commodity products to be regulated by the CFTC. The spot market of traditional commodities, such as gold, is unregulated. If you and I go to a store to buy two gold bars, no one will regulate it. However, the derivatives of gold, such as futures and options, are regulated and supervised by the CFTC. The spot market of digital commodity products, such as Bitcoin and Ethereum, is currently unregulated. The draft rules are prepared for the CFTC to regulate these markets, which means that many trading platforms, such as Coinbase, have to register with both the CFTC and the SEC.
The SEC and CFTC are both establishing new branch offices to support technological innovation. Each item contains a lot of important content. The main content is that the SEC will set up an innovative financial technology strategy center, which will report to the SEC annually. The CFTC will establish a CFTC laboratory as a source of information on financial technology innovation for the CFTC, and also as a forum for innovators to better understand regulatory agencies, which will report to the CFTC annually. The SEC and CFTC will also jointly establish a digital asset advisory committee, which will provide advice to the SEC and CFTC, essentially a think tank. Overall, I personally prefer this draft. It can clarify things and give the regulatory authority of the digital commodity spot market to the CFTC, allowing the Securities and Exchange Commission to manage less. Of course, this still needs to listen to the advice of all parties, hear what the chairman of the Securities and Exchange Commission has to say, and what suggestions Yellen has. Negotiations between the two parties, compromise, and modification of drafts will take a long time. We can also expect that in the next few months, digital assets will spark more controversy on the US political stage. Politicians will closely watch public opinion in order to make wise decisions on digital currency bills. This means that the fate of future digital assets depends largely on the views and attitudes of American voters.But we will eventually have formal laws. AIying will continue to follow the latest developments and update them promptly as more information is received.
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