Christmas Comes Early to Cryptocurrency Firms: The Crypto-Currency Act of 2020
The much anticipated Crypto-Currency Act of 2020 was introduced in draft form to the House of Representatives on Friday, Dec 20, 2019.
Hardly six pages in length, the proposed Bill makes significant progress towards clarifying the regulatory framework surrounding Digital Assets, though we hope lawmakers remove the atrocious hyphen within “Crypto-Currency” prior to a vote by the full House floor.
Speaking on behalf of ourselves and other firms building businesses around cryptocurrencies, we applaud Representative Paul Gosar (R-AZ) and his team for the well written legislation.
You can read the bill here and find our analysis below.
Crypto-Currency Act of 2020 Summary:
The legislation will not create any new agencies, but rather assigns an existing regulatory body for oversight based on a newly proposed federal classification of Digital Assets into three broad categories. Those categories and their corresponding federal regulator are below:
- Crypto-commodities: These tokens are based on commodities or other “economic goods or services. We believe this would encompass “Utility Token” blockchain projects such as those related to medical records, identity, webservices etc.Regulator: Commodity Futures Trading Commission (CFTC)
- Crypto-securities: These are tokens that represent “debt, equity, and derivative instruments that rest on a blockchain,” including those governed by “smart contracts and collateralized by other [digital assets].” We believe that this would include smart contract platforms such as Ethereum, EOS, and others, especially when used to transact value (as opposed to record data). Bitcoin and other “value transfer” cryptocurrencies would fall into this category.Regulator: Securities and Exchange Commission (SEC)
- Crypto-currencies: These tokens are defined as representations of US currency and are “reserve-backed digital assets” such as “stablecoins” that are collateralized by synthetic or physical assets held in a “correspondent banking account.” This category would be the smallest of the three unless expanded to include tokenized real assets such as Gold and Real Estate based cryptocurrencies.Regulator: Financial Crimes Enforcement Network (FinCEN)
The Bill continues saying, “each agency shall issue rules to require each crypto-currency (including synthetic stablecoins) to allow for the tracing of transactions in the crypto-currency and persons engaging in such transactions in a manner similar to that required of financial institutions with respect to currency transactions.”
The proposed legislation is a welcomed move forward, as it provides a protective framework for institutional allocation as well as safeguards against money-laundering and criminal financial activity – a cloud that cryptocurrency proponents have long sought to shed.
We anticipate this to be the official (and long anticipated) death-blow for privacy-centric cryptocurrencies such as Monero and Zcash that had historically run afoul of regulators with their claims of anonymous financial transactions.