New Crypto Bill Aims To Circumvent SEC's Regulation-by-Enforcement Strategy

New bipartisan crypto bill would “create a federal regulatory framework.” Sens. Cynthia Lummis (R–Wyo.) and Kirsten Gillibrand (D–N.Y.) have introduced a proposal to regulate cryptocurrency, called the “Responsible Financial Innovation Act.” It’s a reintroduction of a bill proposed last year, with some new sections added.

“This bill is a whopping 274 pages and covers most of the waterfront of crypto, from securities and commodities regulations to taxation of crypto, broad interagency coordination, and regulation of ‘payment stablecoins,'” noted Justin Slaughter, policy director at the tech investment firm Paradigm.

The likelihood of this bill passing is low, predicted Slaughter. But it could be important for “how it influences the House’s McHenry Thompson bill,” which does have a chance of passing. The latter bill is slated for a markup later this month. (See Slaughter’s Twitter thread for explainers of key parts of the Senate bill that might make it into the House measure; see a discussion draft of the House bill here.)

One key part of the bill attempts to clarify when crypto assets are securities and when they are commodities. In so doing, it “undercuts the SEC through classifying most of the fintech industry as commodities overseen by the Commodity Futures Trading Commission (CFTC),” noted journalist Matt Laslo. And this, he suggested, could be a good thing:

In the wake of crypto collapses, the SEC has used ambiguities in current law—coupled with congressional inaction—to amass sweeping new regulatory powers. Congress wants that power back; well, at least some of the most vocal, angry and well-versed crypto-concerned lawmakers in Washington.

“I think the SEC has been trying to regulate through enforcement, and that’s typically very unwise,” Gillibrand tells me.

In this sense, the congressional crypto regulation could be the lesser of evils. More from Laslo:

Even as industry leaders, investors and their congressional allies accuse the SEC of crippling crypto, what’s become clear in recent months is, if Congress fails to act, again, securities regulators will aggressively go it alone….

Like other federal agencies, senators Lummis and Gillibrand gave SEC officials seats at their re-drafting table—asking for input, running revisions by the regulators and even accepting some of the agency’s recommendations.

“They have seen it. We asked them to tweak it, and we’ve incorporated some of their changes,” Lummis told me for WIRED.

After taking the SEC’s concerns seriously over the past year, the senators have been left astounded-to-angered watching the heavy regulatory hand of the SEC clamp down on the likes of Coinbase and Kraken, et.

“The Binance thing I understand, because it is offshore,” Lummis says. “But the domestic industries really are trying to comply for the most part and they’re just getting the cold shoulder, and that’s not how we regulate in this country. You know, they’re not the enemy.”

You can find the full Lummis-Gillibrand bill here.

It seems to set up reams of regulatory hoops for digital currencies and assets and their exchanges to jump through. For instance, it requires a bunch of new mandatory disclosures to consumers. And “each year, the chief executive officer of a crypto asset intermediary shall, under penalty of perjury, certify compliance” with these consumer disclosures, as well as “applicable anti-money laundering, customer identification, prevention of terrorist financing, and sanctions laws,” and more, the bill’s text states.

“So if a company says it’s disclosing certain consumer protection information & then doesn’t do that, the CEO can be criminally charged with perjury,” notes Slaughter.

Theoretically, this is meant to deal with the Sam Bankman-Frieds of the world. But it seems like the sort of intervention that could ensnare people for simple oversights, too.

Some of the bill’s provisions certainly could have positive and protective effects for consumers. Or they could be time- and resource-wasting bureaucratic nonsense that would, at worse, give the government more leeway to play gotcha with crypto businesses and invade the privacy of crypto users. The new bill just dropped, so we’re still in the period of puzzling out what it will really mean for the crypto industry.

One red flag: The bill would change the Federal Deposit Insurance Act to make money-laundering offenses involving crypto assets punishable by up to five years in prison—which could have a big effect, considering how broad some money laundering statutes reach.

The bill’s establishment of an interagency law enforcement working group to combat illicit crypto use also seems ripe for inviting government snooping and overreach.

In other sections, the Lummis-Gillibrand bill includes tax provisions, some good and some bad. “Token sales with a gain below $200 aren’t taxed,” notes Slaughter. And “trading crypto counts as capital gains income, not regular income, just like in commodities/securities.”

“One major criticism from the [crypto] community…was the fact that the Act intends to uphold the Howey test,” notes FXStreet. “The test is used to determine whether a transaction qualifies as an investment contract in the US which in turn labels the assets involved in the process as Securities….This test has been criticized by many for being outdated and is also the subject of controversy in the ongoing SEC vs. Ripple lawsuit.”


FREE MINDS

Steep drop in confidence in higher education. A new Gallup poll finds a sharp drop in Americans’ confidence in higher education. In the most recent poll, conducted in June, just 36 percent of those surveyed said they had “quite a lot” or “a great deal” of confidence in higher education, down from 48 percent in 2018 and 57 percent in 2015.

In the most recent poll, 40 percent of those surveyed had “some” confidence in higher education, while 22 percent said they had “very little” confidence. In 2018, just 15 percent of folks surveyed had very little confidence and, in 2015, just 9 percent said the same.

Confidence has dropped across the board, “but Republicans’ sank the most—20 points to 19%, the lowest of any group,” notes Gallup. “Confidence among adults without a college degree and those aged 55 and older dropped nearly as much as Republicans’ since 2018.”

The drop is part of a larger disillusionment with U.S. institutions. Gallup’s June poll “also found confidence in 16 other institutions has been waning in recent years. Many of these entities, which are tracked more often than higher education, are now also at or near their lowest points in confidence,” Gallup points out. And, “although diminished, higher education ranks fourth in confidence among the 17 institutions measured.”

Institutions with the highest confidence rankings were small business (65 percent), the military (60 percent), and the police (43 percent). People had the least confidence in television news (14 percent), big business (14 percent), and Congress (8 percent).


FREE MARKETS

What The Bear can teach us about dynamism and “the regulatory nightmare of opening a restaurant.” Hulu TV series The Bear centers on a talented chef named Carmy Berzatto who returns home to Chicago after his brother’s* death to help save his family’s flailing sandwich shop. It’s also a testament to dynamism and “the regulatory nightmare of opening a restaurant,” Scott Lincicome writes. Owning a restaurant is challenging in many ways, but “the industry brings many benefits for those willing to put in the work—and, importantly, regardless of their background.”

That mobility’s owed in part to the industry’s common prioritization of results over credentials – for restaurants and their staff. A nice (expensive) degree from culinary school can open some doors and hone some skills, but the real litmus test is talent, experience, and dedication (just ask these famous chefs). And, while starting and even median compensation often isn’t great, excellence pays off: Top performers—waiters, bartenders, chefs, etc.—can make surprisingly good money, even if they never went to college or end up on TV or a shiny cookbook cover.

Having some family in the biz, I’ve seen this all firsthand: a head waiter who started as a Spanish-only busboy, an award-winning sommelier who dropped out of college and learned wine while waiting tables at a suburban bar & grill, an owner who started as a host, and multiple food trucks that have become packed brick-and-mortar establishments. The work (and the livin’) was hard, and plenty of folks burned out, but for those who could hack it—even ones with sordid pasts or messy presents—the rewards were solid.

The Bear nails this dynamic.

It also nails how “public policy can make success even harder,” notes Lincicome:

Of everything standing in our heroes’ way—the menu, the construction, the staff, the personal stuff—it’s the government that’s their biggest and most omnipresent threat. The crew estimates (optimistically) that just “permits, the inspections, and the licenses” will cost them $10,000, but the bigger cost is time: In seemingly every scene inside the restaurant, their actual work is interrupted by a deflating mention of some new bureaucratic hurdle.

More here.


QUICK HITS

• “Inflation fell to its lowest annual rate in more than two years during June,” reports CNBC, “the product both of some deceleration in costs and easy comparisons against a time when price increases were running at a more than 40-year high.”

• The Federal Trade Commission is appealing a judge’s order denying the agency’s request for it to block Microsoft’s acquisition of Activision Blizzard.

• Planned Parenthood and the American Civil Liberties Union of Iowa are suing over Iowa’s new fetal heartbeat bill. “By banning the vast majority of abortions in Iowa, the Act unlawfully violates the rights of Petitioners, their medical providers and other staff, and their patients under the Iowa Constitution and would severely jeopardize their health, safety, and welfare,” states their complaint.

• Meta doesn’t want Threads to be the new Twitter. “If Meta executives have their way, Threads will not be where people turn to debate policy issues, or catch up on local political developments and learn about breaking news that could affect their lives,” reports NPR.

• “In April, Idaho lawmakers passed legislation requiring any person under 18 to get permission from a parent or guardian before traveling out of state to get an abortion,” notes The Guardian. A new lawsuit claims this statute is unconstitutional.

• Get your politics out of my pickleball, writes Reason‘s Jason Russell.


*CORRECTION: This post previously misstated which The Bear character had died.

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