Posted 10 months ago | by Catoshi Nakamoto
A new bill has been proposed called the “The Digital Asset Market Structure and Investor Protection Act of 2021,” introduced by U.S. Representative Don Beyer (D-VA), who claims the legislation will promote innovation and growth in the digital asset market with a common-sense regulation to protect investors and holders. However, according to an attorney, Gabriel Shapiro, the bill is overreaching and raises civil rights concerns and other issues.
Beyer introduced the bill on Wednesday, stating that the U.S. should provide a legal and regulatory atmosphere that promotes innovation and allows growth in the digital asset sector while simultaneously protecting digital asset holders and consumers.
“Innovation in the digital asset sector is creating new goods and services every day as well as many new, high-quality jobs. The United States should provide a legal and regulatory environment which promotes this type of innovation and growth,” said Rep. Beyer. “Digital assets and blockchain technology hold great promise, and it is clear that assets like Bitcoin and Ether are here to stay. Unfortunately, the current digital asset market structure and regulatory framework is ambiguous and dangerous for investors and consumers. Digital asset holders have been subjected to rampant fraud, theft, and market manipulation for years, yet Congress has hitherto ignored the entreaties of industry experts and federal regulators to create a comprehensive legal framework. Our laws are behind the times, and my bill would start the long overdue process of updating them to give digital asset holders and investors basic protections.”
Beyer highlighted key points of the bill on his website.
Specifically, the bill would:
- Create statutory definitions for digital assets and digital asset securities and provide the Securities and Exchange Commission (SEC) with authority over digital asset securities and the Commodity Futures Trading Commission (CFTC) with authority over digital assets;
- Provide legal certainty as to the regulatory status for the top 90% of the digital asset market (by market capitalization and trading volume) through a joint SEC/CFTC rulemaking.
- Require digital asset transactions that are not recorded on the publicly distributed ledger to be reported to a registered Digital Asset Trade Repository within 24 hours to minimize the potential for fraud and promote transparency;
- Explicitly add digital assets and digital asset securities to the statutory definition of “monetary instruments,” under the Bank Secrecy Act (BSA), formalizing the regulatory requirements for digital assets and digital asset securities to comply with anti-money laundering, recordkeeping, and reporting requirements;
- Provide the Federal Reserve with explicit authority to issue a digital version of the U.S. Dollar, clarify that digital assets, digital asset securities and fiat based stablecoins are not U.S. legal tender, and provide the U.S. Treasury Secretary with authority to permit or prohibit US Dollar and other fiat-based stablecoins;
- Direct the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Securities Investor Protection Corporation (SIPC) to issue consumer advisories on “non coverage” of digital assets or digital asset securities to ensure that consumers are aware that they are not insured or protected in the same way as bank deposits or securities; and,
- Require legislative recommendations from FinCEN, SEC and CFTC to provide clarity on dividing lines between who must register as a money services business versus who must register as a securities or commodities exchange.
Among other things, the bill suggests for stablecoins to be under the oversight of the U.S. Treasury. It also directly states that the Federal Reserve should be given clear authority to issue a digital dollar.
Gabriel Shapiro, attorney at law firm BelcheSmr, olen & Van Loo offered his comments in a Twitter thread explaining the bill.
Shapiro stated that the bill was “unsurprising and fairly measured,” however, he added that in some areas “its overbreadth or ambiguities raise civil rights and other issues.” While, if it passes, Shapiro presume that it would take a “big bite out of the value and confidence in our industry.”
— _gabrielShapir0 (@lex_node) July 30, 2021
Shapiro shared a list of what he considers to be the “good,” the “bad,” and the “ugly” in the proposed legislation.
According to Shapiro the following are good provisions of the bill:
- the definitions/drafting are non-circular and reasonably technologically accurate, unlike other past blockchain legislation.
- there is a reasonable approach to securities laws, defining a token as a security, and the ability for desecuritization.
- it codifies what ‘actual delivery’ means under the Commodity Exchange Act (CEA) and includes delivery through private keys.
- it tries to encourage market transparency by requiring ‘digital asset repositories’ that aggregate off-chain transactions to be registered with the Commodity Futures Trading Commission (CFTC) and publicly file off-chain transaction data.
- it authorizes the creation of “digital versions of Federal reserve notes” on a distributed ledger with legal tender status and without weird surveillance requirements.
- The bill mostly lays off of Defi, instead, it asks for all the major agencies to submit a joint report of recommendations and analysis on DeFI.
As for the bad sections of the bill Shapiro affirmed:
- the bill authorizes the Securities and Exchange Commission (SEC) and the CFTC to jointly classify the top 25 digital assets as either securities or commodities, at their individual discretion and with no designated due process in case of a mistake with no way for projects to appeal.
- though it allows a 3-year grace period prior to desecuritization, it doesn’t solve sufficient decentralization because it only suspends registration requirements not trading.
- descuritization only happens once the SEC determines not to deny a project a desecuritization certificate, and there is no time limit for the agency to make that determination.
As for the bad, Shapiro said the bill requires the Financial Crimes Enforcement Network (FinCEN) to try to ban anonymizing services and privacy coins, like Monero. However, he stated the legislation is confusing on whether the transactions by the institutions may be required to be policed. He added, “that seems basically impossible, and so at a minimum, this section needs some clarification.” Asking the question, “is it just a rule about how institutions interact with anonymizing tech or is it a broad use prohibition?”
It’s worth mentioning that FinCEN recently hired its first-ever Chief Digital Currency Advisor.
Following that hiring, FinCEN expressed earlier this year that the misuse of cryptocurrencies is a national priority for the agency focused on Counter-Terrorist Financing (CTF) and Anti-Money Laundering (AML.) For the reader’s knowledge, FinCEN is an agency under the umbrella of the U.S. Treasury Department which has taken a focus on cryptocurrency in recent months.
However, most are unaware but FinCEN isn’t just a U.S. agency, it is an international standards-setting body that helps shape laws globally.
As Bitboy Crypto first reported last year under the Trump administration, both FinCEN and the FATF are seeking to control unhosted or non-custodial wallets. FATF and FinCEN have both expressed in their view transactions using unhosted wallets increase AML/CTF risks. For those new to crypto, an “unhosted” wallet is a software where you generate your keys and you are in control of your funds. This embodies the entire ethos of cryptocurrency, stemming from the phrase, NOT YOUR KEYS, NOT YOUR CRYPTO.
If the cryptocurrency regulations in the U.S. do go into effect, as Bitboy Crypto warned from two insider sources in September of last year, it would mean crypto businesses would be forced to know every person their users’ crypto transactions, keeping logs, and verifying identities (KYC) even before a transfer can go through for sending crypto. It could also mean jail time and large fines for anyone who tries to evade paying their crypto taxes.
In December 2020, FinCEN issued a proposal of guidance called “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets,”
According to the previous proposal, if a single transaction or combined transactions exceed $10,000 within a 24-hour period, the bank, MSB, or Virtual Asset Service Providers (VASPs) will have to file a report with FinCEN and include information in relation to the transaction, the counterparty if applicable including their name and physical address as well as verification of the identity of its customer. In addition, If a transaction exceeds $3,000, banks and MBSs will be required to keep records of the transaction as well as verify the identity of the customer.
The U.S. SEC (Securities And Exchange Commission) has also recently announced its own intentions in the crypto space, with SEC’s Gary Gensler telling lawmakers that investor protections that apply to traditional securities and financial services should apply to crypto exchanges.
Additionally, Shapiro stated the proposed bill “has a blanket, probably totally unenforceable and possibly unconstitutional rule that “no PERSON may issue, USE or PERMIT TO BE USED a digital asset fiat-based stablecoin that is not approved by the Secretary of the Treasury.” He added, that every single token that is “tied, pegged to, or collateralized substantially with” any “fiat currencies” would be deemed “illegal unless approved by Dept of Treasury.”
It should be mentioned that this bill is still in its infancy and was only just proposed, there are many modifications that can take place between the voting process both in the Senate and the House. In other words, this is a lagging indicator and will take many months to go through the legislative process.
You can read the full text of the bill here.
Bitcoin is currently trading at [FIAT: $38,806.21] DOWN -2.0% in the last 24 hours according to Coingecko at the time of this report.