U.S. lawmakers recently introduced a highly anticipated digital assets bill, aiming to address the crypto industry’s grievances about an allegedly hostile regulatory environment. However, some experts argue that the bill’s ambiguous language, particularly a provision that could impact the DeFi (Decentralized Finance) market, may not effectively curb the SEC’s regulatory approach to cryptocurrencies.
Crypto experts allay concerns about the bill
Crypto expert Billy Sebell, the executive director of the XDC Foundation, expressed concerns about introducing more ambiguity to the industry, emphasizing the need for clarity in regulatory matters. Another crypto expert Gabriel Shapiro, general counsel for Delphi Labs, pointed out that the bill’s language on exemptions for digital assets still leaves many DeFi assets vulnerable to being labeled securities by the SEC, potentially leading to what he referred to as a “backdoor DeFi prohibition.”
The bill, known as the Financial Innovation and Technology for the 21st Century Act, intends to address the shortcomings of the current regulatory regime. Mainly supported by Republican sponsors, including House Agriculture Committee Chairman Glenn Thompson, Rep. French Hill, and Rep. Dusty Johnson, the 212-page legislation introduces new definitions for digital assets, outlines exemptions, and establishes registration processes for cryptocurrency exchanges with both the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC).
Crypto expert Jack Solowey, a policy analyst at the Cato Institute, observed notable changes from a previous draft, particularly concerning the classification of tokens as securities or commodities. The new bill separates the status of a digital token from how it is sold, indicating a potential effort to align with a recent court ruling in favor of Ripple Labs. The ruling emphasized that the XRP token was not sold as a security in most cases, except for sales to institutions.
The content of the crypto bill remains unknown
Regarding registration requirements, SEC Chairman Gary Gensler has accused most crypto projects of violating regulations, with many companies refusing to register with the agency. In an attempt to address this issue, the House bill proposes a registration standard based on the legal definition of “decentralization,” aiming to clarify when a crypto project can be considered “sufficiently decentralized” and thus exempt from SEC registration.
While this approach offers a strategy to navigate registration, it still leaves a gray area for the SEC to determine the decentralization status of a project. Elizabeth Boison, a partner at law firm Hogan Lovells, appreciates the attempt to provide a clearer path for registration but points out that the ultimate decision still relies on the SEC’s judgment.
However, some crypto experts in the industry have expressed frustration with the SEC’s lack of clear guidelines, leading to concerns about potential enforcement actions for alleged violations. Despite the efforts made in the bill, House Agriculture Committee Democrats remain critical, viewing it as too favorable to the crypto industry. The bill’s success may also face political challenges, with the need for bipartisan support and potential resistance from those who fear it might undercut the SEC’s authority.
The bill’s prospects remain uncertain, and its potential impact on the crypto industry is yet to be determined. While some crypto experts believe it addresses certain issues, concerns about vagueness and potential limitations on the DeFi market persist. With the broader political landscape to consider, the road to comprehensive digital asset legislation remains complex and uncertain. As the industry awaits further developments, the delicate balance between regulatory oversight and fostering innovation in the crypto space continues to be a subject of intense debate.
