Recent Review of Crypto-Related Bills in the U.S. Congress
Recently, the U.S. Congress is voting on several crypto-related bills that could significantly enhance the clarity of industry regulation. If successfully passed, these bills may become milestones in the regulatory standardization of the digital asset industry, as the crypto market may be experiencing one of the most important legislative periods in the history of the U.S. Congress. This article will analyze the key contents, market impacts, and potential passability of the following bills:
H.R.4763 — Financial Innovation and Technology for the 21st Century Act
H.R.4766 — Clarity for Payment Stablecoins Act of 2023
H.R.4841 — Keep Your Coins Act of 2023
H.R.1747 — Blockchain Regulatory Certainty Act
S.2355 — A bill to clarify the applicability of sanctions and anti-money laundering compliance obligations to United States persons in the decentralized finance technology sector and virtual currency kiosk operators, and for other purposes. (THE CRYPTO-ASSET NATIONAL SECURITY ENHANCEMENT AND ENFORCEMENT (CANSEE) ACT)
H.R.2670 — National Defense Authorization Act for Fiscal Year 2024
Note: “H.R.” stands for the House of Representatives, referring to bills proposed by House members, while “S” stands for Senate, referring to bills proposed by Senators.
I. U.S. Legislative Process
To better understand the contradictions and potential opportunities in passing these bills, it is necessary to grasp the U.S. legislative process. The United States has a separation of powers, with legislative power belonging to Congress, executive power to the President, and judicial power to the Supreme Court. The composition of the 118th Congress, elected directly, is as follows:
The Senate: Democrats 48; Independents 3 (working with the Democratic caucus); Republicans 49.
The House: Democrats 212; Republicans 222.
Therefore, the ruling Democratic Party holds a majority in the Senate, while the majority party in the House is the Republican Party.
According to the rules of the U.S. House and Senate, there are four types of resolutions: Simple, Concurrent, Joint, and Bills. Bills are the most common and widely used legislative form. Except for taxation and Omnibus bills that must be introduced by the House, a bill is proposed by one chamber, then sent to the other chamber for consideration after passing. After both chambers approve and unify the text, it is sent to the President to be signed into law. The process involves the following stages:
1. Drafting the Bill:
The idea for a bill can come from an industry body or individual citizen, but only Senators or Representatives can formally introduce it. Sponsors seek co-sponsors to add weight to the proposal.
2. Introducing the Bill:
During the regular session, the proposing member fills in the bill title and main content, signs it, and either places it in the “bill box” in the House or hands it to the Senate Clerk in the Senate.
3. Committee Review:
The chamber sends the bill to a specialized committee for research, debate, hearing, and improvement. After a complex, lengthy, and variable review process, the bill moves to the full chamber for debate and voting.
4. Full Chamber Review:
The two chambers of the legislature have significant differences in the procedures for reviewing bills at full sessions. The House of Representatives emphasizes the principle of “minority obeys the majority,” while the Senate emphasizes “negotiation, compromise, and cooperation” between the majority and minority parties.
House of Representatives: For major bills reflecting the interests of the majority party, the Rules Committee can apply “Closed Rules,” meaning that no amendments or substitutes are accepted during the review process. For other bills, the Rules Committee may apply “Open Rules,” allowing members to propose relevant amendments or substitutes during the review process.
Senate: Whether a bill can proceed to the voting process depends on the support of 60 Senators. The Senate has few restrictions on debates, and as long as the rules are not violated, Senators can speak freely without time constraints. Only after all Senators have spoken does voting occur, leading to a unique procedure — Filibuster, where Senators can prevent a vote on a bill through extended speech. Senators can propose amendments or substitutes, allowing room for both party leaders to negotiate and compromise.
5. Unified Text Between Chambers:
Before a bill is submitted to the President for signing into law, both chambers must negotiate a unified text.
6. Presidential Signature:
• Approval: The President approves the bill, and it becomes law.
• Veto: The President returns the bill to Congress with reasons for the veto. Congress can accept the President’s opinion, amend the bill, and resubmit it, or override the veto with a 2/3 vote in both chambers, making it a law.
- No Action: If Congress is in session and the President does not respond within 10 days, the bill becomes law automatically. If Congress adjourns within 10 days after submitting the bill to the President, it will not become law.
Recent Cryptocurrency-Related Bills:
1. The Financial Innovation and Technology for the 21st Century Act (Fit21)
Sponsors
This 212-page bill was jointly drafted by Republican members of the House Agriculture Committee and the Financial Services Committee, and was first released in early June. Its co-sponsors include Glenn Thompson (Republican, Pennsylvania), the Chairman of the House Agriculture Committee, Representative French Hill (Republican, Arkansas), and Representative Dusty Johnson (RS.D). Hill leads the first-ever subcommittee on Digital Assets, Financial Technology, and Inclusion, while Johnson heads the subcommittee on Commodity Markets, Digital Assets, and Rural Development.
Some may wonder why the House Agriculture Committee is concerned with cryptocurrency. The reason is that one of the responsibilities of the Agriculture Committee is to oversee commodities, and historically most commodities have been agricultural products such as corn, soybeans, and wheat. In 1974, the federal government established the Commodity Futures Trading Commission (CFTC) to regulate commodity futures trading, and it continues to be the Agriculture Committee that authorizes the CFTC and handles futures trading. In a statement, the Agriculture Committee expressed interest in all types of commodity markets, including those emerging through new technologies, such as cryptocurrency and cryptocurrency futures trading.
Content and Impact
The bill clarifies the roles of the CFTC and the Securities and Exchange Commission (SEC) in cryptocurrency regulation, granting the CFTC jurisdiction over digital commodities, including related exchanges, brokers, and dealers. According to the sponsors, about 70% of crypto tokens are better classified as commodities rather than securities, so they should fall under the CFTC’s jurisdiction. The bill’s definition of digital commodities emphasizes decentralization and the functionality of associated networks.
Market participants must comply with new, more comprehensive disclosure requirements. Intermediaries can register with either the SEC or CFTC, depending on whether the subject matter relates to a digital commodity. Dual registration with both the SEC and CFTC is required if both are involved.
This bill defines digital assets as “any fungible digital representation of value,” thereby explicitly excluding NFTs. It also lists “ancillary activities” not subject to the bill, including key blockchain support and operational services and actions such as “compiling network transactions,” “providing computational work,” “providing user interfaces,” and “developing, publishing, constructing, managing, maintaining or otherwise distributing blockchain systems.”
The bill represents a proper first step in regulating the digital asset industry and responds to the demand for clarity in digital asset regulation.
Progress
July 27: The House Financial Services Committee passed the bill. July 28: The House Agriculture Committee passed the bill.
It will next move to the House for a full vote.
The bill faces opposition from the Democratic Party, many of whom believe that the SEC should have a greater role than what is currently allocated in the legislation. For example, Democratic Representative Maxine Waters of California has expressed doubts about giving such strong support to the CFTC. Hilary Allen, a professor at American University Washington College of Law, criticizes the bill as a Republican effort to appease cryptocurrency exchanges, Wall Street, and Silicon Valley venture capitalists. Whether the bill will pass in the Democratic-controlled Senate remains uncertain.
1. Clarity for Payment Stablecoins Act
Sponsor
The Clarity for Payment Stablecoins Act was proposed by Patrick McHenry, Chair of the House Financial Services Committee. It is the latest version of a series of stablecoin legislation he has been involved in since last year, aimed at providing a regulatory framework for stablecoins and protecting consumers.
Main Content and Impact
This bill introduces requirements for capital, liquidity, and risk management, mandating that licensed stablecoin issuers hold reserves to support the issued stablecoins. They must disclose the composition of these reserves monthly, publicly reveal their redemption policy, and establish a timely redemption process. The reserves held cannot be pledged, re-mortgaged, or reused, except for creating liquidity to meet redemption requests. Issuers outside the United States must seek registration to operate within the country.
Although this may increase compliance costs, the bill is conducive to the further development of stablecoins and DeFi, and has positive implications for RWA (Real-World Assets). Projects involving the tokenization of fiat currency, government bonds, and other assets can now proceed legally and in compliance, paving the way for the large-scale development of RWA. Coinbase’s Chief Legal Officer, paulgrewal.eth, expressed on social media that the passage of the “Payment Stablecoin Clarity Act” provides significant protection for American investors.
Timeline
On July 28, the U.S. House Committee on Financial Services passed the “Payment Stablecoin Transparency Act,” the American stablecoin regulation bill, by a vote of 34 to 16. The bill also faces opposition from the Democratic Party. Democratic Representative Stephen Lynch of Massachusetts proposed postponing the vote until September, stating that the Democrats did not have sufficient opportunity to express their opinions. Democratic Representative Maxine Waters of California believes that the bill could lead to unhealthy competition for licensing, and indicated that neither the Federal Reserve nor the U.S. Department of the Treasury supports the bill in its current form.
3. Keep Your Coins Act of 2023
This bill aims to protect consumers’ rights to keep Bitcoin in self-custody wallets, ensuring individual freedom and privacy in managing cryptocurrencies. It emphasizes giving individuals full control over their digital assets and could have a significant impact on the cryptocurrency landscape by embracing decentralized principles and financial autonomy.
July 28: The Keep You
r Coins Act was approved by the House Financial Services Committee and will be submitted to the House for a vote.
4. Blockchain Regulatory Certainty Act
Sponsor
On March 23, 2023, U.S. Representatives Tom Emmer and Darren Soto introduced the Blockchain Regulatory Certainty Act to Congress. Majority Whip Tom Emmer, considered a staunch legislative supporter of the crypto industry, has previously backed the SEC Stability Act submitted by Representative Warren Davidson, which calls for the restructuring of the U.S. SEC and the dismissal of its Chairman, Gary Gensler. On May 18, Tom Emmer and Darren Soto also introduced the bipartisan Securities Clarity Act, for which no further details have been announced.
Main Content and Impact
The Act aims to clearly define the regulatory obligations of non-custodial blockchain developers and service providers. It introduces a “safe harbor” provision for non-custodial blockchain developers and service providers (including miners, validators, and wallet providers), considering them as not being money transmitters and therefore not subject to the same level of regulation as cryptocurrency exchanges that offer custodial services. If these entities cannot control digital assets held by users on their platform, they will not be classified as remittance service providers or financial institutions requiring licensure or registration, and will be exempt from specific licensing requirements.
Progress
The Blockchain Regulatory Certainty Act was approved by the House Financial Services Committee on July 27.
5. The Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act
Sponsor
Introduced on July 18 by Senator Jack Reed and co-sponsored by Senators Mark Warner (Democrat, Virginia), Mike Rounds, and Mitt Romney (Republicans, Utah), this bipartisan bill focuses on anti-money laundering and sanctions compliance. Jack Reed has named the bill “THE CRYPTO-ASSET NATIONAL SECURITY ENHANCEMENT AND ENFORCEMENT (CANSEE) ACT” on his personal website.
Main Content and Impact
The bill is aimed at preventing DeFi from being used for money laundering and sanctions evasion, and modernizing the Treasury’s primary anti-money laundering entity. It mandates DeFi protocols to adhere to the same anti-money laundering and sanctions rules as traditional financial institutions, including maintaining anti-money laundering programs, conducting customer due diligence, and reporting suspicious transactions to FinCEN. Controllers of DeFi protocols must ensure these programs are effective. In absence of identifiable controllers, responsibility falls on those who have invested over 25 million USD for the protocol’s development. For instance, if a sanctioned entity, like a Russian oligarch, uses DeFi services to evade U.S. sanctions, the controller or the significant investor would be held accountable.
Currently, the U.S. has around 30,600 crypto ATMs. This bill requires these ATM operators to comply with KYC laws to prevent facilitating illegal activities like money laundering. The bill could impede the progress of DeFi in the U.S.
Progress
As a bipartisan collaboration, especially with its focus on enhancing national security, the bill has a greater chance of reaching a full Senate vote, but has not yet entered the committee voting stage.
6. National Defense Authorization Act (NDAA) for Fiscal Year 2024
The National Defense Authorization Act is an annual bill proposed by the U.S. Congress, defining the military budget for the next fiscal year. Both the House and Senate have introduced the NDAA for fiscal year 2024, H.R. 2670 and S. 2226 respectively.
On July 28, 2023, the U.S. Senate passed the NDAA for Fiscal Year 2024, which includes amendments to strengthen regulations on cryptocurrency trading financial institutions, mixers, and “enhanced anonymity” crypto assets. These amendments were put forth by a bipartisan group of Senators including Kirsten Gillibrand (Democrat, New York), Cynthia Lummis (Republican, Wyoming), Elizabeth Warren (Democrat, Massachusetts), and Roger Marshall (Republican, Kansas).
The amendment, based on the Lummis-Gillibrand Responsible Financial Innovation Act of 2023 (S.4356) and the Digital Asset Anti-Money Laundering Act introduced by Warren and Marshall in 2022, aims to enhance cryptocurrency anti-money laundering and counter-terrorism regulation, and to combat anonymous cryptocurrency trading. It requires the Secretary of the Treasury to develop assessment standards for crypto assets to aid evaluators in assessing risks and ensuring compliance with money laundering and sanctions laws. The passage of this legislation will strengthen the U.S. ability to combat cryptocurrency money laundering. Both chambers now need to negotiate a unified version that can be passed.
Concerning the aforementioned Lummis-Gillibrand Responsible Financial Innovation Act (S.4356), it was reintroduced by Senators Cynthia Lummis (Republican, Wyoming) and Kirsten Gillibrand (Democrat, New York). Cynthia Lummis, a crypto supporter, is known as the “Cryptocurrency Queen” of the Senate. This bill was once considered the most comprehensive and broadly supported crypto bill in Senate history. The collapse of FTX led to the proposal being shelved, with no new developments since November 2022.
Reference:
https://foresightnews.pro/article/detail/38721
https://financialservices.house.gov/
http://www.npc.gov.cn/zgrdw/npc/zt/qt/xzdbtcf/2011-06/13/content_2054549.htm
https://en.wikipedia.org/wiki/118th_United_States_Congres
https://en.wikipedia.org/wiki/National_Defense_Authorization_Act_for_Fiscal_Year_2024
https://www.congress.gov/bill/117th-congress/senate-bill/4356/all-actions
https://www.binance.com/en-AU/feed/post/874084
https://iq.wiki/wiki/clarity-for-payment-stablecoins-act-of-2023
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