Casey Wagner

Senators involved in crafting crypto market-structure legislation may not be communicating much with one another, but they are talking to the industry.&nbsp;



Democrats and Republicans hosted dueling roundtables with crypto industry executives on Wednesday after negotiations between the parties stalled earlier this month. A bipartisan agreement appears to be a long way off, one source says, particularly if the industry continues to align itself with Republicans.&nbsp;



“Don’t be an arm of the Republican Party, they used you all and your megaphones to f*** us,” Democrat Sen. Ruben Gallego told industry members and fellow Democrats Wednesday morning, according to two people in attendance.&nbsp;



Sen. Kirsten Gillibrand, who was involved in bipartisan efforts to pass stablecoin legislation earlier this year, hosted the Democrats’ roundtable. Attendees included Coinbase CEO Brian Armstrong, Solana Policy Institute president Kristin Smith, Paradigm regulatory affairs VP Justin Slaughter, and Ripple chief legal officer Stuart Alderoty.&nbsp;



All Democrat Senators in attendance said they are committed to passing a crypto market structure bill, a person familiar with the matter said. Members added that Republicans themselves are not completely aligned on their draft.



The Republican meeting, which kicked off Wednesday afternoon, was hosted by Senate Banking Committee Chair Tim Scott and Cynthia Lummis, who worked closely with Gillibrand on stablecoin legislation and previous versions of a crypto market structure bill.&nbsp;



Some invited industry voices, including Armstrong and Smith, attended both meetings, but as of Wednesday afternoon, party leaders had no formal plan to meet with one another, according to a person familiar with the matter.&nbsp;



The roundtables come as industry members grow skeptical that market structure will pass this year – or even this session – of Congress. Increasing concern from Democrats about President Trump and his family’s involvement in the industry, coupled with internal disagreements between crypto companies about what should be in the bill, are posing challenges, one person involved in lobbying efforts told Blockworks.&nbsp;



The House passed the CLARITY Act in July. The Senate Banking and Agriculture Committees have since been working on their own versions of the bill, which will eventually have to merge with each other and CLARITY.



Senate Banking Committee Republicans released a <a href="https://www.banking.senate.gov/imo/media/doc/senate_banking_committee_digital_asset_market_structure_legislation_discussion_draft.pdf">revamped version</a> of their bill last month. Democrats responded with a list of <a href="https://www.gallego.senate.gov/wp-content/uploads/2025/09/Market-Structure-Framework-Final.pdf">principles</a> they’d like to see in the legislation. An additional Democratic proposal focused on DeFi was leaked earlier this month, furthering the divide between the two parties.&nbsp;



Senate Banking Committee Republicans are eager to markup their draft, but are growing frustrated with Democrats and their proposals. Republicans want Democrats to come to the table with a complete draft so negotiations can continue, according to two people familiar with the matter.&nbsp;



Wednesday’s roundtables come as the government shutdown continues, now in its third week and officially the second-longest in US history. Committee leadership will move ahead with crypto market structure legislation <a href="https://blockworks.co/news/capitol-gains-shutdown-blues">even if the shutdown continues</a>, three people familiar with the matter told Blockworks.



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Cynthia Lummis

Democrat tells crypto execs Republicans ‘used them’: Sources

This is a segment from the Forward Guidance newsletter. To read full editions, <a href="https://blockworks.co/newsletter/forwardguidance">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



For years I’ve heard that stablecoins are going to be one of the first facets of crypto to become regulated.&nbsp;



We’ve seen a few stablecoin bills <a href="https://blockworks.co/news/congress-crypto-regulation-updates">get introduced</a> and marked up, but so far nothing has been passed. With Trump 2.0 and a <a href="https://blockworks.co/news/congress-in-final-weeks-of-session">Republican majority</a> on the Hill, this may be the year we start to see some movement.&nbsp;



But when it comes to specifics, the industry isn’t on the same page.&nbsp;



Some <a href="https://x.com/pythianism/status/1894109284197437869">claim</a> the latest drafts of stablecoin legislation prohibit non-US issuers from purchasing Treasurys. I wasn’t able to confirm this, and no draft I’ve seen has this language, but that doesn&#8217;t mean there aren’t lobbyists pushing this approach on Capitol Hill.&nbsp;



It’s no surprise that <a href="https://www.bloomberg.com/news/articles/2025-02-25/circle-s-allaire-says-stablecoin-issuers-should-be-us-registered">Circle</a> (and Coinbase, according to people familiar) are pushing for a more US-forward approach to stablecoin legislation. USDC is the world’s second-largest stablecoin, so giving foreign issuers like Tether more hoops to jump through would be advantageous for Circle.&nbsp;



Republican Senators Tim Scott, Bill Hagerty and Cynthia Lummis earlier this month partnered with Democrat Kirsten Gillibrand on the <a href="https://www.hagerty.senate.gov/wp-content/uploads/2025/02/GENIUS-Act.pdf">GENIUS Act</a>. It’s a stablecoin bill that, among other things, establishes reserve and liquidity requirements for payment stablecoin issuers.&nbsp;



Over in the House, Republicans French Hill and Bryan Steil released a discussion draft for the <a href="https://files.constantcontact.com/9f2b5e3d701/6c1f8aa0-095c-4a22-9982-2f4380d0b531.pdf">STABLE Act</a>, which also stipulates that issuers must maintain 1:1 reserves and high liquidity.&nbsp;



No markups have been scheduled so far this session, but I’ve been told we could start to see movement as soon as next month. We’ll be curious to see which witnesses are called to testify.



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Forward Guidance newsletter

Stablecoin legislation may be on shaky ground 

James Cirrone

Sen. Tommy Tuberville, R-Ala., introduced a bill Wednesday alongside Sen. Kirsten Gillibrand, D-N.Y., that will ban companies established in China from acquiring a stake in American digital asset firms. 



The <a href="https://www.congress.gov/bill/118th-congress/senate-bill/1870?s=1&amp;r=1">bill</a> is an attempt to rid the influence of the Chinese Communist Party on American crypto companies, according to Tuberville.



“This bipartisan bill will help to wall off the burgeoning American digital commodity industry from CCP interference and preserve our data privacy and investor protection rights,” Tuberville wrote in a <a href="https://www.tuberville.senate.gov/newsroom/press-releases/tuberville-leads-bipartisan-bill-to-block-ccp-ownership-of-american-crypto-companies/">statement</a>.&nbsp;



Serving as an amendment to the Commodity Exchange Act, the bill would prohibit the CFTC from greenlighting any American-based crypto firm that is “owned in whole or in part by an entity organized or established in the [People’s Republic of China].”&nbsp;



Tuberville first made his intentions to introduce this bill known in a Wednesday Wall Street Journal opinion <a href="https://www.wsj.com/articles/crypto-communism-has-a-new-meaning-prometheum-custody-data-commodities-china-d655bb88?st=pvmccr81tw8iwyx&amp;reflink=article_copyURL_share">piece</a>, where he added that under the bill, the CFTC would have the power to block sales of crypto firms to Chinese-based companies.&nbsp;



In it, Tuberville hinted that his crypto bill could be slipped into the US Farm Bill, a massive piece of legislation that expires in September 2023.&nbsp;



Prometheum Ember Capital is what spurred Tuberville’s interest to keep China out of American crypto. Prometheum was <a href="https://www.businesswire.com/news/home/20230523005313/en/Prometheum-Ember-Capital-is-the-First-SEC-Qualified-Custodian-for-Digital-Assets-Securities">granted</a> a license by FINRA on May 23 to operate as a custodian for digital assets. Tuberville cited SEC <a href="https://www.sec.gov/Archives/edgar/data/1718271/000101905619000222/offeringcircular.htm">filings</a> showing that Prometheum is strategic partners with Shanghai Wanxiang Blockchain Inc., which is a spinoff of Wanxiang Group.



Tuberville’s smoking gun is that Lu Guanqiu, the founder of Wanxiang Group, was posthumously praised by the CCP in 2021 and named a &#8220;National Excellent Communist Party Member.&#8221; The CCP went on to say in a press <a href="http://www.wanxiang.com.cn/en/index.php/news/info/2132">release</a> that “Comrade Lu Guanqiu had always listened to the Party and followed the Party.”



So far, China hasn’t been a <a href="https://blockworks.co/news/crypto-bills-make-hill-debut">huge focus in lawmakers’ crypto bills</a>, but Tuberville has shifted that dynamic. Gillibrand hasn’t been on the record about her joint effort with Tuberville on this bill, but has teamed up with Republicans before.&nbsp;



Gillibrand and Sen. Cynthia Lummis, R-Wyo., tried to pass the Responsible Financial Innovation Act last year, a bill focused on regulating digital assets. It hasn’t been reintroduced in the new congress yet.



Congress is also beginning to take notice of Web3 and blockchain technology, applications of crypto beyond money and currency.



The House Energy and Commerce Committee Subcommittee on Innovation, Data and Commerce gathered Wednesday to discuss possible use cases for distributed ledger tech.&nbsp;



One professor talked about blockchain’s potential to advance contact tracing systems for Covid-19 and other diseases. Another expert testified on the topic of smart contracts, saying they could help improve regulatory compliance and supply chain management.



Rep. Rick Allen, R-Ga., said his colleagues are making a mistake talking only about the security versus commodity debate.



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China

Tuberville bill would block Chinese ownership of US crypto companies

More than 50 legislative items relating to crypto and digital asset policy made their debut on Capitol Hill last Congressional session. Industry members can expect to see some make a second appearance this session, lawmakers say.



Here’s a breakdown of some of the bills already giving the legislative process another try, and what we can expect to see on the docket soon.&nbsp;



<h2 class="wp-block-heading">Warren’s planned take two</h2>



Sen. <a href="https://blockworks.co/news/silvergate-collapse-not-crypto-problem">Elizabeth Warren, D-Mass.</a>, said in a hearing earlier this year that she would be giving her <a href="https://www.congress.gov/bill/117th-congress/senate-bill/5267">Digital Asset Anti-Money Laundering Act</a> another go on the Senate floor this session. The law, introduced in December 2022, was intended to bring crypto and digital asset companies into the current anti-money laundering and anti-terrorism framework.&nbsp;



The bill proposes any entities that maintain public blockchains, including validators and software developers, be required to register as a financial institution and submit know your consumer and compliance materials. Critics said the bill, introduced in the shadow of FTX’s collapse, enhances surveillance but would not have prevented the exchange’s failure as FTX was operating illegally under existing law.&nbsp;



<h2 class="wp-block-heading">Retirement plan legislation&nbsp;</h2>



The Financial Freedom Act, first introduced in May 2022, already made its second debut in the Senate when sponsor Tommy Tuberville, R-Ala., brought an amended version to the floor in February. The new and improved version seeks to expand crypto investment opportunities for retirement funds by prohibiting the Department of Labor from limiting options that may be available to 401(k) plan participants through self-directed brokerage windows.



&#8220;Meddling in 401(k) investments through overregulation restrains financial growth and restricts personal liberty,” Tuberville said in a February <a href="https://www.tuberville.senate.gov/newsroom/press-releases/tuberville-reintroduces-bill-to-keep-the-government-out-of-americans-investment-decisions/">statement</a>. “The federal government shouldn&#8217;t choose winners and losers in the investment game.”



The proposed law’s sister bill in the House, also dubbed the Financial Freedom Act, made its second rounds in February when Rep. Byron Donalds, R-Flo., reintroduced an amended version.&nbsp;



<h2 class="wp-block-heading">Bipartisan effort&nbsp;</h2>



Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., introduced their bipartisan <a href="https://www.gillibrand.senate.gov/news/press/release/-lummis-gillibrand-introduce-landmark-legislation-to-create-regulatory-framework-for-digital-assets/">Responsible Financial Innovation Act</a> late last session. After facing criticism over how the bill defined tokens and how it divided responsibilities between regulatory agencies, the senators went back to the drawing board.&nbsp;



A revised version of the legislation is scheduled to be introduced this month, Sens. Gillibrand and Lummis <a href="https://blockworks.co/news/gillibrand-lummis-revamped-crypto-bill">said</a> during a joint appearance in March.



<h2 class="wp-block-heading">New tax proposals&nbsp;</h2>



Reps. Patrick McHenry, R-N.C., and Ritchie Torres, D-N.Y., <a href="https://blockworks.co/news/crypto-broker-validators-miners-developers-bill">brought their Keep Innovation in America Act back</a> to the Hill this session. The proposed law would push new broker tax reporting requirements for transactions greater than $10,000, set to launch in 2024 to 2026.



The bill’s goal is to narrow the definition of broker, which became a hot topic when lawmakers were pushing President Biden’s infrastructure plan through. Brokers should not include miners and software developers for the purpose of reporting requirements, Torres and McHenry argue.&nbsp;



<h2 class="wp-block-heading">What’s next&nbsp;</h2>



Simply bringing revamped legislation back to the table is not enough to guarantee policy changes, though, lawmakers admit. Appealing to top committees at the right time is crucial when trying to push bills through.&nbsp;



The Senate Banking Committee did not mark up Lummis and Gillibrand’s bill, the senators admitted, a key step in advancing the policy. Historic crypto-skeptic Sen. Sherrod Brown, D-Ohio, heads the committee, which <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">held a hearing in February to discuss the fallout from FTX</a>.&nbsp;



Crypto investment vehicles are “speculative products run by reckless companies, we know that’s true,” Brown said during the hearing.&nbsp;&nbsp;



“It would require, certainly, a change in approach for the Banking Committee to move forward with markup,” Lummis said in March, referring to the Committee’s decision to consider the Responsible Financial Innovation Act.



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Crypto Bills Didn’t Die Last Session: Lawmakers Plot Reintroductions

A revamped bipartisan effort to bring sweeping regulation to cryptocurrency is going to make the rounds on the Hill this spring, senators say.&nbsp;



Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., co-sponsored the Responsible Financial Innovation Act, first introduced to the Senate in June. A revised version of the <a href="https://www.gillibrand.senate.gov/news/press/release/-lummis-gillibrand-introduce-landmark-legislation-to-create-regulatory-framework-for-digital-assets/" target="_blank" rel="noreferrer noopener">proposed law</a> will land on Senate desks in mid-April, Lummis said Thursday in Washington, DC.



The revised version is going to be more detailed when it comes to defining tokens, Gillibrand said, speaking alongside Lummis at the Milken Institute Future of Digital Assets Symposium. 



The new bill also has clarified some of the definitions regulators and industry members found troubling, Lummis said, not mentioning any specific examples of new language.



“We are trying to address some of the concerns we heard, we are going to try to build out some of the regulatory framework that we left for studies in the first version, and so it might also be more thorough than the first version,” Gillibrand added. 



The original bill focused on clarifying the roles of different regulatory bodies, increasing stablecoin oversight, and eliminating taxes on cryptocurrency transactions of less than $200.



As the industry has largely anticipated, senators are prioritizing stablecoins. The bill makes a point to place a universal ban on all algorithmic stablecoins. There are still details to be worked out around determining who can issue a stablecoin and what kinds of reserves would be required.



There are partisan hold-ups, though, the senators acknowledged. The Senate Banking Committee has not yet marked up the bill, Lummis added, a key step in advancing the policy. Historic crypto-skeptic Sen. Sherrod Brown, D-Ohio, heads the committee, which <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">held a hearing in February to discuss the fallout from FTX</a>.&nbsp;



Crypto investment vehicles are “speculative products run by reckless companies, we know that’s true,&#8221; Brown said during the hearing.  



“It would require, certainly, a change in approach for the Banking Committee to move forward with markup,” Lummis said.



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Gillibrand, Lummis Plan Revamped Crypto Bill for April

Ben Strack

<div id="highlights-block_636112012e547" class="highlights">
 <ul>
 <li>Grayscale CEO Michael Sonnenshein told Blockworks he expects 2023 to be an “active year for crypto legislation”</li>
 <li>A separate poll by GMI PAC found 44% of US voters own crypto or are considering it</li>
 </ul>
 
</div>



More than one third of US voters are taking the crypto views of candidates into account in the lead-up to midterm election day next week, according to a new survey. 



The survey — which polled 2,000 likely voters in early October — found that 37% have been parsing the role of crypto in terms of casting their vote. It was conducted by The Harris Poll on behalf of digital asset manager Grayscale Investments. 



A quarter of Americans said inflation and the broader economic climate has made them more interested in crypto. Roughly half of respondents not already invested said they are waiting until the economy improves.



But regulation is also key.&nbsp;



Roughly 80% agreed that there should be clearer crypto regulations, including 88% of Democrats and 77% of Republicans. Nearly 40% considered the US behind other countries in terms of regulating digital assets in a manner that makes it easy and safe to trade.&nbsp;



Grayscale CEO Michael Sonnenshein told Blockworks in a statement that the firm would be monitoring developments of the <a href="https://cms.blockworks.co/bitcoin-ether-to-be-regulated-as-commodities-by-cftc-per-new-senate-bill/" target="_blank" rel="noreferrer noopener">Digital Commodities Consumer Protection Act</a> and the <a href="https://cms.blockworks.co/bipartisan-crypto-bill-hits-congress-with-focus-on-cftc-jurisdiction-taxes/" target="_blank" rel="noreferrer noopener">Responsible Financial Innovation Act</a> — plus any potential stablecoin regulation.&nbsp;&nbsp;



The <a href="https://www.agriculture.senate.gov/imo/media/doc/crypto_bill_section_by_section1.pdf" target="_blank" rel="noreferrer noopener">proposed</a> Digital Commodities Consumer Protection Act — authored by Sens. Debbie Stabenow, D-Mich., and John Boozman, R-Ark. — would classify bitcoin and ether as commodities. That would leave the two largest cryptocurrencies under the purview of the Commodity and Futures Trading Commission (CFTC).



Another, the Responsible Financial Innovation Act — introduced by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y. — would go a step further: It would give the CFTC jurisdiction over most crypto tokens, while pushing for increased oversight of stablecoins.&nbsp;



<a href="https://cms.blockworks.co/bipartisan-stablecoin-regulation-has-a-slim-chance-of-passing-this-year/" target="_blank" rel="noreferrer noopener">Bipartisan stablecoin regulation is unlikely to pass this year</a>, sources told Blockworks. Industry participants said the Biden administration’s <a href="https://cms.blockworks.co/white-houses-latest-crypto-framework-lacks-clarity-some-say/" target="_blank" rel="noreferrer noopener">crypto framework</a>, unveiled in September, was lacking in details, as the president called for yet more research on a potential digital dollar.



“We anticipate 2023 will be an active year for crypto legislation,” Sonnenshein said. “Politically, we are fortunate that crypto is a non-partisan issue, and we look forward to continuing to build crypto allies in Congress among returning incumbents and incoming freshman members.”



The regulation survey comes as Grayscale is entrenched in a lawsuit against the SEC. The company sued the regulator after the SEC denied its proposal to convert its flagship Grayscale Bitcoin Trust (GBTC) into an ETF.



<a href="https://cms.blockworks.co/grayscale-lawsuit-moves-forward-as-gbtc-discount-widens/" target="_blank" rel="noreferrer noopener">Grayscale submitted its initial brief</a> earlier this month. <a href="https://cms.blockworks.co/us-chamber-of-commerce-rips-sec-for-denying-proposed-grayscale-bitcoin-etf/" target="_blank" rel="noreferrer noopener">Amicus briefs supporting Grayscale</a> from the US Chamber of Commerce, the Blockchain Association and Coinbase were filed about a week later. The SEC is scheduled to file its own brief on Nov. 9.&nbsp;



<a href="https://cms.blockworks.co/poll-us-voters-who-own-crypto-are-on-the-rise-just-in-time-for-midterms/" target="_blank" rel="noreferrer noopener">A separate poll</a> last month commissioned by GMI PAC found that 44% of voters now own or are considering owning digital assets. A subset — 17% — already own crypto, according to the poll.



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Survey: 37% of Voters Considering Candidates’ Crypto Positions

Brian Nibley

<div id="highlights-block_62bdbf2c4696b" class="highlights">
 <ul>
 <li>The Responsible Financial Innovation Act could provide the regulatory clarity that investors have been looking for</li>
 <li>Under the current proposal, bitcoin and ether would likely be labeled as commodities, while most altcoins would be considered securities</li>
 </ul>
 
</div>



By and large, blue-chip institutions have been forced to wait on the sidelines when it comes to entering crypto markets. There’s no global consensus on a regulatory framework or rules of the game that provide the necessary clarity for a large institution to deploy capital.



Fortunately, we are seeing signs that this appears to be changing.



US Sens. Lummis and Gillibrand have introduced a bill that would provide much of the needed regulatory clarity that investors have been hoping for. The Responsible Financial Innovation Act would define many crypto-related terms such as smart contract, digital asset, and virtual currency. Most importantly, the bill would classify some cryptocurrencies as commodities and others as securities.&nbsp;



Under the current proposal, bitcoin and ether — which account for the majority of crypto’s market capitalization — would likely be labeled as commodities, while many other coins would be considered securities. Because regulators across the globe have differing opinions on the question of classification, this bill could be instrumental in settling the debate. Once this framework has been established, it would provide a basic foundation for regulators, making it easier for other nations to replicate rather than starting with a blank canvas.



<h3 class="wp-block-heading">Global crypto regulatory landscape</h3>



Looking around the globe, there’s no clear agreement on how to regulate crypto. Nations span the spectrum — from making bitcoin legal tender to attempting to ban crypto outright and everything in between.



Central America’s El Salvador declared bitcoin to be legal tender in September 2021, with the Central African Republic following suit less than a year later. By embracing bitcoin, these nations hope to spur innovation, boost tourism and empower their largely unbanked or underbanked populations.



In the US, the muddy waters of regulation are gradually becoming clearer. The IRS classified crypto as property in 2014, with relatively minor regulations coming in since then. Some of these include the Financial Crimes Enforcement Unit, or FINCEN, <a href="https://complyadvantage.com/insights/cryptocurrency-regulations-around-world/" target="_blank" rel="noreferrer noopener">imposing</a> new data collection rules on exchanges. Biden’s infrastructure bill also included a provision to <a href="https://cms.blockworks.co/infrastructure-bill-advances-in-senate-crypto-amendments-await-vote/" target="_blank" rel="noreferrer noopener">classify exchanges as brokers</a>, making them subject to anti-money laundering and combatting the financing of terrorism (AML/CFT) reporting and record-keeping.



The state of New York recently instituted a partial ban on proof-of-work mining, while states including Wyoming, Florida and Texas have become more lenient, with Texas now hosting approximately <a href="https://www.cnbc.com/2021/10/09/war-to-attract-bitcoin-miners-pits-texas-against-new-york-kentucky.html" target="_blank" rel="noreferrer noopener">14% of America’s total bitcoin hash rate</a>.



And now, with new legislation on the horizon, some long-awaited regulatory clarity could be within reach.&nbsp;



<h3 class="wp-block-heading">The Lummis-Gillibrand and CFTC solution</h3>



As mentioned, the Commodity Futures Trading Commission, or CFTC, will likely gain regulatory authority over the majority of crypto’s market capitalization if the Responsible Financial Innovation Act passes. For further insight on the implications of this, we spoke with David Mercer, CEO of <a href="https://bit.ly/3I1cIJq" target="_blank" rel="noreferrer noopener">LMAX Group</a>, the operator of <a href="https://bit.ly/3NJHQ1z" target="_blank" rel="noreferrer noopener">LMAX Digital</a>, the leading institutional crypto currency exchange:



“The fact this is a bipartisan proposal is a positive and important step forward for the entire global crypto community. A well-considered framework from a renowned regulator will support the institutionalization and growth of the crypto market which is currently stymied by the offshore nature of trading and regulation. It is a demonstration that policy makers are taking crypto seriously.”



As far as the CFTC vs. SEC debate is concerned, LMAX Group is decidedly agnostic:&nbsp;



“Whilst we have no strong view on the particular regulator, it is good news that globally respected ‘non-island’ regulators are considering their approach to regulating this nascent asset class.”



<h3 class="wp-block-heading">Is crypto a commodity, security or currency?</h3>



Law makers behind the Lummis-Gillibrand bill classify bitcoin as a commodity because its supply and network have no central governing body or team behind them. The profit potential for bitcoin isn’t tied to “the efforts of others,” meaning it could fail the <a href="https://www.investopedia.com/terms/h/howey-test.asp" target="_blank" rel="noreferrer noopener">Howey Test</a>, ruling it out as a security. It’s much harder to make a similar case for other coins.&nbsp;



Classifying bitcoin as a commodity would provide some much-needed regulatory clarity. Still, some claim that the CFTC doesn’t hold the same regulatory oversight powers as the SEC, making it more difficult for regulators to clamp down on fraud and scams.



The vast majority of altcoins would likely be classified as securities, given that most of them pass the Howey Test, which the SEC uses to determine whether or not something is a security. The Howey Test has four key metrics:



<ul class="wp-block-list"><li>An investment of money</li><li>In a common enterprise</li><li>People buy it with the expectation of profit</li><li>The profit potential is derived from the efforts of others</li></ul>



In contrast, Mercer said the LMAX Group views bitcoin differently.



“BTC is a currency whilst Ethereum and other layer-1 blockchains such as Litecoin could well fall under a securities or commodities umbrellas; the tokenized, or DeFi economy including staking would appear to be securities but they are also diverse in nature so some may differ in the rights and returns they demonstrate.”



<h3 class="wp-block-heading">What nations need to reach regulatory consensus</h3>



If North American and European nations could all reach similar agreements on crypto regulation, that could be the catalyst for significant amounts of capital to enter the space. Other large economies, such as the BRICS nations and others in South America, Asia, and Africa, could then easily follow.&nbsp;



Or, as an alternative, it’s possible that an increasing number of nations could adopt bitcoin as legal tender, sidestepping the need for regulation altogether, at least when it comes to the world’s largest cryptocurrency.&nbsp;&nbsp;



David Mercer had the following to say on the matter:



“Ultimately our view is that the CFTC, or other renowned global regulators, would be excellent stewards and supervisors of this new asset class and bring greater stability and integrity to&nbsp; crypto market structure. We do not believe there is a need for any new regulatory body and all products and participants can be accommodated broadly within existing frameworks.



A well-considered initial framework from renowned regulators will lend credibility to crypto and only aid the institutionalization of the market.



Crypto and DeFi cross a wide cross section of traditional finance, and it’s likely that all regulators, SEC, CFTC and the Fed will have to create a framework in the long term.”



This content is sponsored by <a href="https://bit.ly/3I1cIJq" target="_blank" rel="noreferrer noopener">LMAX</a>.



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Bitcoin

Can Nations Agree on Crypto Regulation?

<div id="highlights-block_62a8b418e6a12" class="highlights">
 <ul>
 <li>Lummis/Gillibrand bill clarifies that unrealized staking and mining gains should not be taxed as income</li>
 <li>The bill, if passed, would impact a tax law one Tennessee couple has been fighting for over a year</li>
 </ul>
 
</div>



The long-awaited US digital asset bill introduced earlier this month provides clarity that could change the outcome of one legal battle currently underway.&nbsp;



The <a href="https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Responsible%20Financial%20Innovation%20Act%20%5bFinal%5d.pdf" target="_blank" rel="noreferrer noopener">Responsible Financial Innovation Act</a>, co-sponsored by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., states that miners and stakers would only have to pay income taxes on realized rewards — when the associated digital assets are sold. 



Income generated by digital asset mining and staking “shall not be included in the gross income of the taxpayer” until the taxpayer sells or trades the assets, the bill says.



The clause would change a tax law one Nashville couple has been fighting for over a year.&nbsp;



In May 2021, Joshua and Jessica Jarrett requested a refund of $3,293 of income tax paid in 2019 for the receipt of 8,876 Tezos tokens, according to a legal <a href="https://www.scribd.com/document/509435727/Jarrett-Compl?secret_password=LFIAqtDNw9i5loKXdjB4" target="_blank" rel="noreferrer noopener">complaint</a> filed on May 26, 2021, with the US District Court for the Middle District of Tennessee. The couple also sought a $500 increase in tax credits for lost income. 



Tokens attained through proof-of-stake protocols are taxpayer-created property and should not be taxed until sold or exchanged, the Jarretts argued. The complaint claims that nothing under United States law, nor IRS code and regulations, allows taxpayer-created property to be taxed as income.&nbsp;



The IRS offered the Jarretts a refund in December. The couple refused, choosing instead to continue to fight the matter in court. In March, the <a href="https://cms.blockworks.co/doj-moves-to-dismiss-tezos-staking-tax-case-in-closely-watched-crypto-dispute/" target="_blank" rel="noreferrer noopener">Department of Justice</a> urged a judge to dismiss the case. A bench trial is currently set for March 2023.



As the law currently stands, stakers and miners are required to pay taxes on rewards as if they were income — the law does not consider if the tokens were sold or traded.



“This has been actually catastrophic for some clients that stake, for example, UST and via some of these very high-yield staking platforms,” Andrew Gordon, tax attorney and president of Gordon Law Group, said. “You are paying tax on those rewards at the fair market value as they&#8217;re coming in, not when you sell it, but as it comes in.”&nbsp;



This bill, if passed, Gordon said, would create a strong incentive to bring miners and stakers to the US.&nbsp;



The crypto bill now faces a lengthy vetting process, with it next moving into committee. Gillibrand serves on the agriculture committee, which has oversight of the Commodities Futures Trading Commission, and Lummis serves on the banking committee, which oversees the SEC.



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New Crypto Bill Suggests Unrealized Staking Gains Should Not Be Taxed

<div id="highlights-block_62a36f55c42f4" class="highlights">
 <ul>
 <li>Senators Lummis and Gillibrand’s bill attempts to bring DAOs into the tax code, but classification of groups will be complicated</li>
 <li>State versus federal classifications are also concerning, one industry member said</li>
 </ul>
 
</div>



The long-awaited bipartisan digital asset bill introduced to Congress Tuesday has many in the industry optimistic about the future of crypto policy, but sections of the legislation, if passed, may significantly change how actors in the space operate.&nbsp;



Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., co-sponsored the initiative, dubbed the <a href="https://www.gillibrand.senate.gov/imo/media/doc/Lummis-Gillibrand%20Responsible%20Financial%20Innovation%20Act%20%5bFinal%5d.pdf" target="_blank" rel="noreferrer noopener">Responsible Financial Innovation Act</a>. While the bill includes some measures mentioned in <a href="https://cms.blockworks.co/bipartisan-crypto-bill-to-hit-congress-within-weeks/" target="_blank" rel="noreferrer noopener">other proposed legislation</a>, it also tackles new issues for the first time, one of which being DAOs, or decentralized autonomous organizations. 



In the section on DAOs, the bill specifies that the default classification for these community-led entities is as a business entity for tax purposes. It also requires most DAOs to be properly incorporated in accordance with existing laws of an identifiable jurisdiction, such as a limited liability company (LLC) or partnership.



“That means that DAOs would be taxed as corporations or as partnerships, despite the differences between DAOs and traditional corporations and partnerships,” said Dario de Martino, a cryptocurrency and blockchain attorney at Allen &amp; Overy. “Under the existing default rules, a DAO would be a partnership if the DAO is domestic or if it is non-US, and at least one of its members does not have limited liability.”



Because DAOs are by definition decentralized and have several members, often with frequent turnover, classification and taxes are going to be complicated, de Martino added.



The bill states that to qualify as a DAO, an organization must be “properly incorporated or organized under the laws of a State or foreign jurisdiction as a decentralized autonomous organization, cooperative, foundation or any similar entity.”



“Looking forward, the definition of a DAO will be crucial — is it a corporation or a security?,” Aaron Tilton, CEO of SmartFi and former Utah state legislator, said. “DAOs allow voting rights for governance and some economic distribution rights similar to dividends.”



DAOs may require sub-classification for tax purposes depending on how they operate and how they remunerate their members, Tilton added.&nbsp;



“There will be much for both federal and state legislatures to tackle in the coming months and years on this issue,” he said.&nbsp;



The bill states that a project can avoid business disclosure requirements if it can prove it is sufficiently “decentralized” to not be considered a business entity.&nbsp;



“Termination of disclosure requirements is tied to whether a project has substantial evidence that there have been no entrepreneurial or managerial efforts with respect to the underlying assets,” de Martino said.&nbsp;



The proposed disclosure regime would remain in place until the issuer can demonstrate that the project is decentralized through an opt-out process, de Martino said. The issuer must submit a certification, which may be denied if the SEC determines by majority vote that the certification is not supported by substantial evidence.&nbsp;



State versus federal classification is also an issue, Tilton said. LLC and corporation filings are submitted to state entities, further complicating the potential implications of Lummis and Gillibrand’s bill, he said.&nbsp;



&#8220;The DAO recognition will really be handled at the state level like any other business entities such as corporations or LLC,” Tilton said. “Without state level recognition of DAOs, those federal tax implications will not be affected.”



Jae Yang, CEO of non-custodial crypto exchange Tacen, agreed, adding that enforcement will need to be further clarified.



“Who&#8217;s going to be watching these DAOs very closely remains to be seen,” Yang said. “Much like there are tens of thousands of companies that are out there, but not every single company&#8217;s internal activities are going to be reviewed by auditors or regulators from outside.”



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crypto bill

New Crypto Bill Suggests Some DAOs Be Taxed Like Businesses

<div id="highlights-block_628d0d5ece848" class="highlights">
 <ul>
 <li>Senators Lummis and Gillibrand said they plan to unveil their bipartisan crypto bill in June</li>
 <li>It will be the first comprehensive cryptocurrency bill to be introduced, Gillibrand said</li>
 </ul>
 
</div>



Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-NY) took the stage Tuesday at the DC Blockchain Summit to discuss details of their highly anticipated bipartisan cryptocurrency bill, which they said will be introduced as soon as next week.&nbsp;



The Responsible Financial Innovation Act, which has been in the works for over a year, is going to be the first comprehensive digital assets framework to make it to Capitol Hill, Gillibrand said.&nbsp;



“Our bill does include some of the [same] provisions as some of the other House and Senate bills, but no other bill endeavors to create a regulatory framework for the whole industry,” Gillibrand said. “Most other bills are small, discreet and one-idea bills.”&nbsp;



Highlights of the bill include provisions that protect miners from being treated as brokers, which tackles a controversial section of the recently-passed <a href="https://cms.blockworks.co/infrastructure-bill-advances-in-senate-crypto-amendments-await-vote/">Infrastructure Bill</a>. It also grants the Commodity and Futures Trading Commission (CFTC) regulatory authority over much of the space and clarifies that cryptocurrencies are not securities unless they are being offered to fund a company, such as an initial coin offering.&nbsp;



“It&#8217;s pretty clear that bitcoin is a commodity,” Lummis said. “It is our intent that the CFTC takes the reins of jurisdiction over bitcoin and [ether], together they make up over 60% of the cryptocurrency markets in existence, and they&#8217;re the ones that are most likely to survive.”&nbsp;



The bill references the same “responsible innovation” highlighted in President Biden’s <a href="https://cms.blockworks.co/whos-in-charge-of-what-breaking-down-the-crypto-executive-order/">executive order</a>. It’s a cause the two senators are hoping their colleagues can get behind.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Cynthia [Lummis] and I together can work with our colleagues to find the common ground to move it forward,” Gillibrand said. “I&#8217;m very optimistic, and the reason I am is because this bill has been heavily researched.”</blockquote>



The two senators have consulted with stakeholders and industry leaders for months to compose this bill, Lummis added. There have been successful bipartisan efforts in the past, Gillibrand said, and this should be no different. Still, getting the bill to the floor is going to be an uphill battle, the two admitted.



This bill will have at least four committees of jurisdiction, Gillibrand said. To make it to a vote on the floor, it will likely need at least four hearings, which can be a lengthy process. Efforts are already underway, Gillibrand said.&nbsp;



“On my committee of jurisdiction on the Agriculture Committee, Debbie Stabenow (D-Mich.) was very interested in this space,” Gillibrand said. “I&#8217;m going to give her our draft legislation and I&#8217;m hoping that she likes it enough to mark up this draft.”



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congress

Bipartisan Crypto Bill To Hit Congress Within Weeks

<div id="highlights-block_62475be27337f" class="highlights">
 <ul>
 <li>Both senators agree crypto regulation is needed, but they differ on how it should be executed</li>
 <li>Warren said buying bitcoin is like “buying air” during an interview Thursday night</li>
 </ul>
 
</div>



Two of the highest-profile US senators, while both agreeing on the need for more defined cryptocurrency regulation, are divided on the value of digital assets and their place in consumers&#8217; portfolios.



Senators Elizabeth Warren, D-Mass., and Cynthia Lummis, R-Wyo., particularly clashed on the fundamental value of bitcoin Thursday on Chuck Todd’s “<a href="https://www.nbcnews.com/meet-the-press/video/sen-lummis-bitcoin-is-a-commodity-136674885755" target="_blank" rel="noreferrer noopener">Meet the Press</a>.”



“[When I buy bitcoin] am I buying air?” Warren said during the interview. “It&#8217;s a bet on whether this thing, this ephemeral token, will become more valuable or less valuable.”



The concept, however, is not so different from the US stock market, NBC reporter Jo Ling Kent said during the program.



Lummis, on the other hand, sees crypto morphing into a viable currency down the line.



“I believe it will be currency someday, but at this point in its existence, it&#8217;s a commodity,” Lummis said. “At some point, though, it will become a means of payment, which it is not right now, but it&#8217;s going to happen really fast.”



There is a portion of the crypto industry that welcomes regulation, according to Warren, but it bears keeping in mind that with new rules come new responsibilities.



“You have to do certain things, like banks do, like know your customers, so you know you’re not doing drug money laundering, or you’re not helping tax cheats, or you’re not helping a country like Russia evade financial sanctions,” Warren said.



The more libertarian wings of crypto, however, are lobbying for no regulation whatsoever.&nbsp;



“There’s another part of the crypto world that says, ‘No, we like it that nobody can tell who came on the system and what they’re using the system for,’” she said. “They would describe it as getting away from the prying eyes of the government, but another way to say that is, ‘Yeah, opening up the door to the money launderers, the human traffickers, the tax cheats, the countries trying to evade sanctions.’”



There should be a balance when it comes to regulation, Lummis, who recently introduced a new bi-partisan cryptocurrency bill with Sen. Kirsten Gillibrand, D-N.Y., countered.&nbsp;



“I&#8217;m very confident that bitcoin will stand the test of time,” Lummis said. “I&#8217;m not confident that every other digital asset that&#8217;s out there has the same qualities of permanence and complete decentralization. There&#8217;s some fraud that&#8217;s going to occur, which is why I think it&#8217;s so important for the United States to create a regulatory framework that allows for innovation, but still creates rules of the road that protect individual privacy.”&nbsp;



Regardless of lawmakers’ views on the largest digital currency, industry experts insist the asset class is too evolved now to fall by the wayside.



“It’s way too late to try to ban bitcoin,” said Cailtin Long, CEO of Avanti Group, a Wyoming-based bank leading the charge for digital asset adoption in the state. “Everyone who says that bitcoin should be banned is in fact revealing that they don&#8217;t understand what bitcoin actually is.”



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Kirsten Gillibrand

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