IIt has been a difficult month for the crypto world, which has had to deal with stock market crashes, layoffslawsuits from regulators and the rise rhetorical repression critics. But on June 7, two U.S. senators introduced a bipartisan bill that, if passed, could pave the way for greater crypto adoption and growth.
The Responsible Financial Innovation Act, proposed by New York Democrat Kirsten Gillibrand and Wyoming Republican Cynthia Lummis, aims to “bring a light regulatory touch,” Senator Lummis said at the DC Blockchain Summit last month. Lummis hopes this will spur innovation while putting in place just enough safeguards for consumers. While some crypto insiders are excited about the potential of the bill, skeptics fear it leaves too much leeway in an industry plagued by fraud and financial crime.
Most experts believe that the chances of the bill passing before the midterm elections are extremely slim. Nevertheless, here are some of its main elements.
Tax benefits for crypto users
Tax filing for crypto users can be extremely onerous, and Gillibrand and Lummis’ bill attempts to help alleviate these difficulties. It states that buying goods or services under $200 with crypto no longer requires filing a report with the IRS, which would make it easier to buy a coffee with Bitcoin, for example. The bill also reverses a provision of last year’s infrastructure bill that hit crypto miners with heavier taxation.
While these measures were welcomed by crypto users, Omri Marian, professor of tax law at the University of California, Irvine School of Law, wrote on Twitter that the bill “gives crypto a tax preference that no other asset has.”
Last month, the collapse of the stablecoin UST – which was supposed to hold a peg to the dollar but fell in value to a penny – raised many concerns about riskier stablecoin models (including algorithmic models like UST) and how they should be regulated. The bill hopes to allay some of these fears by creating an oversight framework for stablecoins (though the term “algorithmic stablecoin” isn’t even mentioned).
The bill requires stablecoin issuers to prove that they are backed by US dollars and to be able to provide full refunds to their users at any time. It also empowers the US Treasury to ensure that stablecoin issuers comply with sanctions. Cody Carbone, director of policy at DC-based crypto lobbying group Chamber of Digital Commerce, told TIME that the bill outlines “appropriate checks and audits that we need to ensure that [stablecoins] are safe and usable.
Energy Studies and 401(k)s
The bill also mentions two areas of crypto that have been hotly contested recently: the impact of crypto on the environment and its potential inclusion in retirement accounts. First, the bill asks the Federal Energy Regulatory Commission to conduct a report on cryptocurrency mining, which has just been halted in New York State after fierce debate. The bill also asks a government watchdog to review the risks and opportunities of allowing employees to invest in crypto with their 401(k) retirement accounts, which has been criticized by figures like Senator Elizabeth Warren.
CFTC, take the wheel
Currently, several government agencies are vying for control of crypto, including the United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). SEC Commissioner Gary Gensler, who has criticized crypto over the years, argued that most cryptocurrencies meet the definition of a security, which would place them under his domain. Under Gensler’s tenure, the SEC took action against some prominent crypto projects, including the currency Ripple and the lending platform BlockFi.
Gensler’s tactics have frustrated many crypto insiders. The solution to this problem, according to many, is for cryptocurrencies to be regulated by the CFTC, which is smaller and has been more crypto-friendly in the past. Likewise, this bill seeks to give them, not the SEC, more power by defining most currencies as commodities, much like wheat or oil. Any cryptocurrency hoping to be registered as a commodity should be sufficiently “decentralized”, although this descriptor is quite murky.
Marking cryptocurrencies as commodities would theoretically open the door to much faster growth, and it would pave the way for a bitcoin ETF (exchange-traded fund), which would allow less technically sophisticated investors to get into crypto. But critics worry the CFTC lacks the capacity to crack down on fraud and bad actors in the space. “Giving the CFTC jurisdiction over crypto is like New York City outsourcing crime-fighting to a small-town police force,” said Dennis Kelleher, co-founder of Better. Markets, a financial reform advocacy group, told CNBC.
However, a CFTC controlled crypto community will not mean full play. Just last week, the agency sued leading crypto exchange Gemini, accusing them of lying to regulators.
Reactions to the bill
The announcement of the bill caused a mix of reactions both inside and outside the crypto community. Hilary Allen, a prominent cryptoskeptic and professor at American University Washington College of Law, wrote on Twitter that the bill gives “the crypto industry pretty much what it wants, but it doesn’t honor not the regulatory objectives that [Democrats] usually give priority. She expressed concern about the lack of cybersecurity stipulations in the bill, writing“What about testing the software for basic quality control/fitness for purpose? We do this for aviation software – we should do the same if our financial system is to run on it.
In stark contrast, the bill has also faced some mistrust from crypto enthusiasts. Adam Cochran, who heads venture capital fund Cinneamhain Ventures, said passing the bill would cause “significant growing pains”.
“Right now, as noted, many compliance standards are cumbersome and expensive. They would impose excessive burdens on emerging startups, smaller players and international entities that crowd out competition in the space,” he wrote in an email to TIME.
Carbone of the Digital Chamber of Commerce disputed that characterization, arguing that the bill would “give a path for some of our innovative experiments to really grow.” Carbone says the Digital Chamber was very active in drafting the bill, calling it “a collaborative effort with these two offices and the industry to draft this thing.”
While Carbone and the rest of the Digital Chamber have high hopes for the bill, it is highly unlikely to pass any time soon. The bill will have to clear at least three different Senate committees before being put to a vote in the full chamber. It is possible that it will be divided into smaller bills. And the arguments from those inside and outside the crypto community are only going to get louder and more contentious, especially if the crypto economy continues to slide.
Nonetheless, the bill’s introduction serves as a major landmark for an industry trying to emerge from its Wild West phase. “We are extremely excited,” says Carbone. “It’s a big bill, and it’s a beast: it covers almost every aspect of the digital asset and blockchain industry. It’s not the last step to getting a clear and balanced sound in this space, but it’s a great first step.
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