A bipartisan group of U.S. Senators — Debbie Stabenow (D-MI), John Boozman (R-AR), Cory Booker (D-NJ), and John Thune (R-SD) — recently introduced an important piece of legislation that, if enacted, would alleviate much of the regulatory confusion surrounding cryptocurrencies. While only 16 percent of Americans have ever used or purchased these digital tokens, the U.S. has become a leader in this growing industry. Clear regulatory guidelines are needed to ensure the U.S. remains a global leader.
If Congress passes the Digital Commodities Consumer Protection Act of 2022 (DCCPA), it will create a transparent framework from which the cryptocurrency industry can grow. This legislation creates a definition for the term digital commodities, which is “a fungible digital form of personal property that can be possessed and transferred person-to-person without necessary reliance on an intermediary.”
The bill specifically mentions the cryptocurrencies Bitcoin and Ether. However, including the lack of reliance on a third-party intermediary as a qualifying factor would expand the definition to other tokens, as this is a fundamental aspect of cryptocurrency. Additionally, the legislation expands the definition of a commodity to include the new term “digital commodity,” which provides cryptocurrency a secure location within the existing U.S. legal and regulatory structure. According to the definition from the Commodity Exchange Act, the term “commodity” is categorized by a form value, “in which contracts for future delivery are presently or in the future dealt in.”
One of the key characteristics of commodities is that they are fungible, meaning each unit is interchangeable with another. This makes them particularly useful for future trading, as traders aren’t creating contracts for specific units but rather for quantities of a general unit of a good. In this sense, cryptocurrencies fit within the commodity framework as fungible tokens of value.
Additionally, the DCCPA would establish that cryptocurrencies fall under the Commodity Futures Trading Commission (CFTC). One of the barriers to cryptocurrency expansion has been the confusion over agency regulatory authority, which creates a lack of consensus over what rules apply to a cryptocurrency firm.
According to Chris Brummer, a professor at Georgetown University, the current default regulatory agency is the Federal Trade Commission (FTC). However, other potential agency examples would include the Commodity Futures Trading Commission, the Internal Revenue Service, or the Financial Crimes Enforcement Network. All these agencies have different rules and regulatory processes which can be hard to navigate and create significant confusion.
Internationally, the DCCPA would also allow the U.S. to catch up with other countries that have clarified the status of cryptocurrencies within their governments’ legal and regulatory framework. For example, Japan recognizes cryptocurrency as a form of payment and treats it as digital money, positioning it within a legal structure. In Bulgaria, cryptocurrency is considered a financial instrument, subjecting it to income taxes. While various countries have different classifications, they all aid in the clarity of how cryptocurrencies will be treated within the legal system.
The United States saw the most cryptocurrency gains in 2021 with almost $47 billion, far outpacing the United Kingdom, which was the next highest country with just over $8 billion. Despite the stake the U.S. has in the crypto industry, the existing confusing regulatory structure has hindered further growth.
In fact, following a court battle over whether the cryptocurrency company Telegram’s offerings should be classified as a security, the company ended up announcing it would discontinue services in the United States. While Telegram was initially expected to launch its TON token, this launch was delayed after complaints from the Securities and Exchange Commission. The company cancelled the project and only partially refunded U.S. investors “due to an uncertain regulatory attitude in the United States.”
The DCCPA addresses the U.S.’s current shortcomings regarding cryptocurrency’s standing in the legal system. Future regulations or rules could be helpful in addressing other areas such as taxation and fraud. However, this bill offers a tremendous first step on which to grow, and lawmakers should focus their attention on clarifying the legal position of a burgeoning technology.
Published in the Economic Standard