Introducing the New Bill by Senators Lummis and Gillibrand

This new bill, presented by Senators Cynthia Lummis and Kirsten Gillibrand on Tuesday, covers a wide range of digital assets. Lummis, a first-time Republican senator from Wyoming, is a member of the Banking Committee and a known advocate for cryptocurrency, even considered a “Bitcoin maximalist.” She reportedly owns between $100,000 and $350,000 in Bitcoin. In contrast, Gillibrand is a Democrat from New York and sits on the Senate Agriculture Committee. The bill has been in development by both House and Senate members for months, emphasizing that cryptocurrencies are more akin to commodities than securities.

The proposed “Responsible Financial Innovation Act” would grant the Commodity Futures Trading Commission (CFTC) the authority to oversee the crypto industry. Additionally, the bill includes provisions for changes to bankruptcy laws, ensuring that assets deposited by users are returned rather than liquidated.

Some Cryptocurrencies Still Considered Securities

According to the new bill, fully decentralized cryptocurrencies, such as Bitcoin and Ether, are classified as commodities. Since these decentralized assets do not generate returns from a centralized enterprise, they do not qualify as securities. However, experts have pointed out that determining whether an asset is truly decentralized can be challenging.

To clarify the distinction, the bill proposes that all digital assets be treated as ancillary assets considered commodities, as long as they do not act as securities issued by companies through debt or equity. Furthermore, any digital assets that provide holders with financial benefits, such as the right to company profits, will automatically be classified as securities.

Some members of the crypto community have expressed concerns that Lummis, being a Bitcoin maximalist, may push to classify Bitcoin as a commodity, while classifying other layer-1 cryptocurrencies as securities. These fears were addressed by Kristin Smith, Executive Director of the Blockchain Association, who assured that several industry groups, including the Blockchain Association, contributed to shaping the bill, ensuring no bill would be passed solely to favor Bitcoin.

The Difference Between Commodities and Securities

Understanding the distinction between commodities and securities is crucial, as it will influence the future growth and regulation of the crypto sector. Commodities generally face less stringent regulations than securities and are often traded more by professional investors than individual traders. Cryptocurrencies that are classified as commodities will be overseen solely by the CFTC, a body generally perceived as more supportive of the crypto community. Previously, various agencies such as the CFTC, SEC, and other self-regulatory bodies were responsible for overseeing the crypto sector.

In contrast, cryptocurrencies designated as securities will be subject to more rigorous government scrutiny. Companies issuing these tokens will be required to adhere to stricter price transparency rules and increased reporting requirements.