As the infrastructure bill that brought a great deal of attention to Washington D.C. on the regulatory oversight of crypto, the 117th Congress now has seen 18 bills that have been introduced that directly impact cryptocurrencies, blockchain technology, or central bank digital currencies.
Last Congress, the main focus was around the introduction of Facebook’s new Libra project – renamed Diem – with an intense focus on the potential impact of stablecoins. Back in 2019, the Blockchain Association did an outstanding effort on the Hill with helping to differentiate between Bitcoin and other more centralized cryptocurrencies.
Additionally, the birth of a digital dollar or central bank digital currency (CBDC) made a splash in the crypto community, while Coin Center, the leading think tank in Washington D.C. on policy matters related to cryptocurrency, presented the dangers of losing privacy in moving forward with a U.S. digital dollar.
This article seeks to lay out for those newly interested in crypto regulation what some of the legislation is about that has been introduced. The sections will be divided into bills that cover bills that aim at providing regulatory clarity for crypto, the technology underlying bitcoin called blockchain, and consideration of a U.S. CBDC.
U.S. Policy On Crypto And Providing Regulatory Clarity
Congressman Tom Emmer (R-MN) has introduced three bills already, including the Blockchain Regulatory Certainty Act that would provide a safe harbor from licensing and registration for certain non-controlling blockchain developers and providers of blockchain services. The idea would be to prevent blockchain platforms with no direct control over tokens from needing to register as money transmitters.
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His most well-known bill is probably the Securities Clarity Act (H.R. 4451). The Securities Clarity Act states that an investment contract asset (for example, a digital token) is separate and distinct from the securities offering that it may have been a part of. The approach is technology-neutral, and applies equally to all assets offered and sold, whether tangible or digital. This new defined term would refer to any asset sold as part of an investment contract that would not be considered a “security” but for its sale as part of an investment contract. Both the Securities Clarity Act and the Blockchain Regulatory Certainty Act received the endorsement of Coin Center, Blockchain Association, and the Chamber of Digital Commerce.
Emmer also introduced the Safe Harbor For Taxpayers With Forked Assets Act of 2021 (H.R. 3273) that holds harmless taxpayers attempting to report gains or losses of their forked digital assets and delineates that receipt of a forked virtual currency may not constitute a taxable event. This legislation is designed to provide a safe harbor until the IRS provides clear and consistent rules for forked cryptocurrencies.
Similar to the Securities Clarity Act is another bill introduced by Congressman Warren Davidson (R-NC). Davidson introduced the Token Taxonomy Act (H.R. 1628) that specifically excludes digital tokens from being securities for regulatory purposes. This bill also focused on three tax-related policies, including the exclusion from gross income any gains from virtual currency transactions up to $600. The other concepts included tax-free treatment of some virtual currency exchange transactions under Section 1031 that is typically associated with real property and offer benefits to holding virtual currencies in IRA accounts.
The other bill that intersected with the tax treatment of virtual currencies was of course the Infrastructure Investment and Jobs Act (H.R. 3684) that sought to amend Section 6045(c)(1) of the Internal Revenue Code of 1986 to require, “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.’’ Although an Amendment to change this language to specifically exclude bitcoin miners and software providers from the tax reporting requirement was agreed upon, it was ultimately not accepted in the Senate and now waits for deliberation by the House of Representatives before being sent to President Biden’s desk for signature.
Meanwhile, Representative Don Beyer (D-VA) surprised many of the regular Members of Congress heavily involved in developing legislation for crypto by introducing a comprehensive bill called the Digital Asset Market Structure and Investor Protection Act (H.R. 4741). The bill would create statutory definitions for digital assets and digital asset securities and provide the Securities and Exchange Commission (SEC) with authority over digital asset securities and the Commodity Futures Trading Commission (CFTC) with authority over digital assets. Additionally, the bill would provide legal certainty as to the regulatory status for the top 90% of the digital asset market (by market capitalization and trading volume) through a joint SEC/CFTC rulemaking, and require digital asset transactions that are not recorded on the publicly distributed ledger to be reported to a registered Digital Asset Trade Repository within 24 hours to minimize the potential for fraud and promote transparency.
Additionally, the bill would explicitly add digital assets and digital asset securities to the statutory definition of “monetary instruments,” under the Bank Secrecy Act (BSA), formalizing the regulatory requirements for digital assets and digital asset securities to comply with anti-money laundering, recordkeeping, and reporting requirements. Finally, the bill would provide the Federal Reserve with explicit authority to issue a digital version of the U.S. Dollar, clarify that digital assets, digital asset securities and fiat based stablecoins are not U.S. legal tender, and provide the U.S. Treasury Secretary with authority to permit or prohibit US Dollar and other fiat-based stablecoins, as well as direct the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Securities Investor Protection Corporation (SIPC) to issue consumer advisories on “non coverage” of digital assets or digital asset securities to ensure that consumers are aware that they are not insured or protected in the same way as bank deposits or securities.Finally, the bill would require legislative recommendations from FinCEN, SEC and CFTC to provide clarity on dividing lines between who must register as a money services business versus who must register as a securities or commodities exchange.
For all the work that has gone into some of the bills previously discussed, the Eliminate Barriers To Innovation Act of 2021 (H.R. 1602) has made the most progress, having already passed the House of Representatives and now awaits the Senate. The bill was introduced by the House Financial Services Committee Ranking Member Patrick McHenry (R-NC) with Chairman Stephen Lynch (D-MA) of the Financial Technology Task Force and would form a joint CFTC And SEC working group on digital assets to help provide clarity in what is a security and what is a commodity among digital assets. The working group would be composed of public and private representatives to study and issue a report to Congress.
A companion bill from the Token Taxonomy Act was introduced by Congressman Darren Soto (D-FL) in the form of the Digital Taxonomy Act (H.R. 3638). This bill would require the Federal Trade Commission to report on its efforts to address unfair or deceptive trade practices related to digital tokens. Soto has been consistently active in looking for ways to support the industry and assist with the growth of blockchain technology.
Blockchain Technology For Consumer Protection
Soto introduced both the Blockchain Innovation Act (H.R. 3639), and the Blockchain Technology Coordination Act of 2021 (H.R. 3534). The Blockchain Innovation Act would require the Department of Commerce to consult with the Federal Trade Commission and other relevant agencies to study potential applications of blockchain technology, while the Blockchain Technology Coordination Act would establish a ‘National Blockchain Technology Coordination Office’ within the Department of Commerce. The Consumer Safety and Technology Act (H.R. 3723), introduced by Congressman Jerry McNerney (D-CA), and co-sponsored by Soto, would require the Department of Commerce to consult with the Federal Trade Commission (FTC) on potential applications of blockchain technology and also require the FTC to report on efforts to address unfair or deceptive trade practices with digital currencies.
Meanwhile, Congressman Brett Guthrie (R-KY) and Congresswoman Doris Matsui (D-CA), along with Senator Todd Young (R-IN) and Senator Ed Merkley (D-MA), introduced the Blockchain Promotion Act of 2021 (H.R. 3612, S.1869). This bill would direct the Department of Commerce to establish the Blockchain Working Group to submit a report to Congress that contains a recommended definition of the distributed ledger technology commonly referred to as blockchain technology.
Congressman Ted Budd (R-NC) introduced the Financial Technology Protection Act (H.R. 296) that would provides for the investigation of new financial technologies (e.g., digital currencies) and their use in terrorism and other illicit activities. Specifically, the bill would establish a Independent Financial Technology Task Force to Combat Terrorism and Illicit Financing, which must research terrorist and illicit use of new financial technologies and issue an annual report. Additionally, The Department of the Treasury would be required to establish a fund to provide a reward for a person who provides information leading to the conviction of an individual involved with terrorist use of digital currencies as well as the creation of a FinTech Leadership in Innovation and Financial Intelligence Program to support the development of tools and programs to detect terrorist and illicit use of digital currencies.
Finally, Representative Bobby Rush (D-IL) introduced the RESCUE Act for Black and Community Banks (H.R. 154) that requires the Comptroller General of the United States to carry out a study on blockchain technology and determine. whether such technology could be used to increase investment by lower-income individuals in startups and other crowd-funded companies.
Central Bank Digital Currency: A U.S. ‘Digital Dollar’
No less than ten Senators support a bill designed to examine the national security implications of the People’s Republic of China’s efforts to create an official digital currency (S. 2543). Senator Bill Hagerty (R-TN) introduced the bill that would require the President to report within one year on the (1) risks arising from potential surveillance of transactions; (2) risks related to security and illicit finance; and (3) risks related to economic coercion and social control by the People’s Republic of China. Particularly after 5G, the threat of China’s design of a new digital currency has quickly gotten the attention of lawmakers this year.
Meanwhile both Representative Bill Foster (D-IL) and Representative French Hill (R-AR) introduced the Central Bank Digital Currency Study Act of 2021 (H.R. 2211) that would set out a comprehensive study on the impact of the introduction of a U.S. CBDC. Both Foster and Hill led the way originally in writing a letter to the Federal Reserve asking the agency to start considering the possibility of a CBDC. The study in this bill would cover areas such as BSA/AML concerns, cross-border remittances, financial inclusion efforts, and data privacy and security issues, to name a few. Hill also introduced another bipartisan bill with Representative Jim Himes (D-CT) called the 21st Century Dollar Act (H.R. 3506), that focuses not just on a CBDC, but more broadly on the question of how to keep the U.S. dollar as the global reserve currency. The bill would require the development of a report on a ‘Dollar Strategy’ for the United States.
Finally, Representative Rashida Tlaib (D-MI) introduced the Automatic Boost To Communities Act (H.R. 1030) that seeks to create monthly stimulus payments during the Covid-19 crisis. As a method of delivery, the bill authorizes digital dollars, or dollar balances consisting of digital ledger entries recorded as liabilities in the accounts of any Federal reserve bank and digital coins or currency instruments issued by the United States Treasury as legal tender. These digital dollars would be held as bearer instruments in any digital dollar cash wallet approved by the United States Treasury. A person could also have a digital dollar account wallet maintained by the Federal Reserve as well.
With still over a year to go in watching how the 117th Congress may still act on cryptocurrency and blockchain policy, the bills this article helped explain provides a good primer on the main issues Congress is sorting through as it relates to cryptocurrency, blockchain, and CBDC.