Americans for Tax Reform supports Rep. Glenn Thompson’s (R-Pa.) bipartisan Digital Commodity Exchange Act of 2022 (H.R. 7614).
A federal regulatory framework for digital commodities is virtually nonexistent. This bill fills that gap by authorizing the Commodity Futures Trading Commission (CFTC) to regulate the trading of digital commodities while complementing the existing authority of state laws covering crypto platforms. Registration with the CFTC is not required unless a digital commodity exchange is trading leveraged products or offers digital commodities to individuals prior to being available to the public.
The bill also offers a regulatory regime for stablecoins, which are cryptocurrencies backed by the U.S. dollar or other reserve assets. Under the bill, stablecoin issuers are permitted to register with the CFTC as “fixed-value digital commodity operators,” which could improve risk management and increase transparency. Allowing stablecoin issuers, but not requiring them, to register with the CFTC is a far superior option than empowering the Federal Reserve.
There is currently disagreement between industry, Congress, regulators, and pundits about whether the CFTC or the Securities and Exchange Commission (SEC) should take the lead on digital asset regulation. This bill provides the CFTC (which has traditionally regulated derivatives contracts on commodities) with the primary regulatory authority while also maintaining the SEC’s traditional authority to regulate securities.
There are two other bills in Congress that authorize the CFTC to be the primary regulator for digital commodities. However, the Lummis-Gillibrand Responsible Financial Innovation Act(S. 4356) and the Digital Commodities Consumer Protection Act of 2022 (S. 4760), could fail to curtail the SEC’s current behavior of regulating crypto platforms by enforcement. These two bills need more explicit language to clarify that the Howey test (which normally determines whether a product is a security and is derived from the Supreme Court’s ruling in SEC v. W.J. Howey Co.) does not apply to digital assets. Instead of the SEC, Rep. Thompson’s bill would give the CFTC the authority to decide what counts, and what does not count, as a digital commodity.
Congress and the Biden administration are targeting the environmental effects of cryptocurrencies. Both S. 4356 and S. 4760 include provisions that require the federal government to issue reports on the amount of energy consumed and types of energy used to conduct digital asset mining activities. The Biden administration has already indicated its desire to root out digital asset mining activities that are perceived to be too energy intensive. The White House Office of Science and Technology Policy (OSTP) has gone so far as to say that “the Administration should explore executive actions, and Congress might consider legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining.”
New York also passed a bill this year “that would impose a two-year ban on new cryptocurrency mining permits, specifically at fossil-fuel.”
Moreover, the Treasury Department issued a report claiming that a central bank digital currency (CBDC) could prove to be more environmentally sustainable than other permissionless blockchains, implying that a CBDC (which have clear negative repercussions) could be a better option to limit greenhouse gas emissions than current technology.
Mandating the reports in these two bills would add fuel to the fire and could bolster the administration’s goal of wiping out mining and transaction activities it perceives as deleterious to the environment.
Rep. Thompson’s bill, which does not include an energy consumption report, offers a light-touch federal regulatory framework that concurrently preserves the authority of current state laws overseeing digital commodity transactions. This will augment transparency, eliminate regulatory ambiguity, and allow innovative technologies to flourish for Americans investing or trading in digital commodities.
ATR urges lawmakers to support H.R. 7614.