- Rep. K. Michael Conaway introduced the Digital Commodity Exchange Act yesterday.
- At the same time, Rep. Tom Emmer introduced the Securities Clarity Act.
- While both would change crypto regulations, neither is likely to become law soon.
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People seldom hear about legislation addressing cryptocurrency or blockchain technology for a very good reason: That type of legislation seldom goes very far in the US Congress.
Yesterday, however, two such bills were introduced side-by-side with some fanfare: the Digital Commodity Exchange Act and the Securities Clarity Act. The bills drew plaudits from cryptocurrency advocates looking for regulatory guidance. That doesn’t mean, however, that they will become law.
What are these bills?
The Digital Commodity Exchange Act (DCEA), proposed by Texas Representative K. Michael Conaway, creates a national regulatory framework for cryptocurrency exchanges to opt in to, overseen by the Commodity Futures Trading Commission. (Exchanges can opt to stick with their state’s money transmitter license.)
In a press release, Coin Center Executive Director Jerry Brito praised the bill (which Coin Center helped create), saying, “Innovators and entrepreneurs get greater clarity and more regulatory options, while investors benefit from increased supervision of markets.”
The team at Coin Center have been working with Reps. Conaway and Emmer separately on these two bills for months. It's very gratifying to see them both introduced in Congress today. https://t.co/Lcxw3jwS4p
— jerrybrito (@jerrybrito) September 24, 2020
Tech attorney Gabriel Shapiro told Decrypt, “A proposed unified framework for registration of [cryptocurrency exchanges] makes a lot of sense to me as an alternative to the current fragmented money services business regulations faced by exchanges.”
The second bill, the Securities Clarity Act, put forth by Minnesota Representative Tom Emmer, would separate investment contracts from the resultant tokens, providing some regulatory clarity to digital currency creators about whether their products are securities.
Brito called it “the smartest approach we have seen to provide clarity about how securities law applies to digital assets.”
On this point, Shapiro disagreed. “It misunderstands and obfuscates existing securities laws by assuming that the only time the securities laws are relevant to token-trading is when tokens are presold pursuant to a SAFT,” he said. “It is essentially an attempt to 'bail-out' the failed SAFT model of token financing after it has been proven in federal court to be premised on a total misunderstanding of the securities laws.”
Run the numbers
Regardless of where one stands on the legislation, there’s no rush to form an opinion. Bills don’t typically move quickly through Congress—or move at all.
Members of the US House of Representatives and US Senate have introduced 13,418 pieces of legislation since January 3, 2019, when the 116th Congress was seated. Of those, only nine percent—1,392—have proceeded to the House floor for consideration.
Not so bad, right?
Actually, even that low number is a bit deceiving because it includes resolutions that don’t have any effect on the law. Many of them rename post offices, for example.
In fact, only 158 of all the 13,418 proposed bills and resolutions have been enacted into law. That’s one percent. The vast majority die a slow, lonely death in committees.
That goes for cryptocurrency and blockchain legislation, too.
Remember the Token Taxonomy Act, which would have specified that digital tokens are not securities? After failing to get any attention in 2018, it was reintroduced by Rep. Warren Davidson of the Congressional Blockchain Caucus, on April 9, 2019, and referred to the Committee on Financial Services that same day. The committee hasn’t touched it since.
There’s also the Virtual Currency Tax Fairness Act of 2020, the Virtual Currency Consumer Protection Act of 2019, the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2019, and the Safe Harbor for Taxpayers with Forked Assets Act of 2019. All introduced and promptly referred to committee, where they remain.
Even the Homeland Security Assessment of Terrorists’ Use of Virtual Currencies Act, a bill that doesn’t exactly set cryptocurrency advocates’ hearts racing, made it through the House only to wither in a Senate committee.
Pardon the reprisal of Schoolhouse Rock, but these are just bills on Capitol Hill. First, they have to be approved within the committee, then they can be taken up by the entire House. Then, they get to the Senate, where that process starts again. Once the same bill passes both chambers, it goes to the president’s desk for a signature—and he can veto it.
It’s not easy to make a law.
Friends in high places
But every year, some bills eventually do run the gauntlet and are elevated into law. Though these two bills are at the beginning of the starting process, they certainly have a shot, provided they have some support in Congress.
The DCEA has the support of at least six members of Congress. The bill, sponsored by Texas Republican Mike Conaway, was cosponsored by Representatives Emmer (R-MN), Dusty Johnson (R-SD), David Schweikert (R-AZ), Austin Scott (R-GA), and Darren Soto (D-FL).
Conaway is the ranking member of the House Agriculture Committee, meaning he’s the top Republican there. It’s good to be on top, but it’s less good to be a Republican in a Democrat-controlled House of Representatives. Each committee and subcommittee is chaired by a Democrat, and the party maintains a majority in each. In other words, the Democrats have control over the agenda.
It's not that Democrats are necessarily intent on blocking this type of legislation (see: Soto and other Democrat members of the Congressional Blockchain Caucus), but given the high volume of bills, legislation from their side of the aisle is more likely to gain traction.
When asked whether the House Agriculture Committee chair, Rep. Collin Peterson, had indicated any interest in taking up the bill at the committee level, a Conaway spokesperson told Decrypt that he hadn’t. She added, however, “We’re hoping that continued bipartisan support on the hill and from those in the industry will change that.” The bill does indeed have bipartisan support, in the form of Rep. Darren Soto, who also co-chairs the Congressional Blockchain Caucus.
Regarding the Securities Clarity Act, Representative Emmer’s spokesperson told Decrypt, "We have spoken extensively to Rep. Lynch’s office about it and have had a great working relationship with his office." Emmer is the ranking Republican on the House Financial Services Committee’s Task Force on Financial Technology; Representative Lynch is the chair of the FinTech Task Force. The spokesperson further said that Rep. Lynch hosted a briefing on blockchain technology that full committee Chairwoman Waters participated in. This bill also boasts bipartisan support and has three co-sponsors: Conaway, Soto, and Democrat Ro Khanna of California.
While it’s common for bills with just a few cosponsors to become law, it’s more difficult for Republican-sponsored bills to become law. Of the 99 resolutions the House has introduced and sent to the president so far in this Congress, only 25 have been sponsored by Republicans—and seven of those were to rename post offices.
So, you’re saying we have a chance
If you haven’t heard, there’s an election coming up in November. The new Congress will be sworn in come January.
Between COVID-19, electioneering, and confirming a new Supreme Court justice (in the Senate), the prospects of pushing through major securities law reforms or exchange regulatory frameworks isn’t likely.
“The bill probably won't be marked up in the next three months, so it will expire and have to be re-introduced after the 117th Congress is seated,” Compound Finance General Counsel Jake Chervinksky, a fan of Emmer’s bill, told Decrypt. “We'll have to see what the House Financial Services Committee looks like at that point to guess whether the bill has a future or not.”
Shapiro isn’t so sure it matters. While he believes the DCEA “should have a chance of passing,” he’s doubtful Congress will take up the Securities Clarity Act.
“I do not anticipate that members of Congress will be sympathetic to rewriting U.S. securities laws to provide a wholesale exemption for nearly all token transactions regardless of which token is involved,” he told Decrypt. “The risks investors and markets face from tokens like BTC and ETH (whose sources of value are sufficiently decentralized) are categorically different from the risks posed by certain other tokens (such as many VC-backed active governance tokens).”
Which is another reminder that crypto holders themselves can be split on whether the laws are reasonable. The public, of course, is just one more stakeholder that can grease the wheels or put the brakes on legislation.
See you in January.
Update: This article has been updated from its original version to include comments from Rep. Tom Emmer's office as well as additional cosponsors.