On September 24, Representative Michael Conaway introduced a bill that outlines a new framework for digital currencies, allegedly treating them like commodities under the Commodities Exchange Act, CoinDesk reported first.
The bill proposes that crypto exchanges be put under federal jurisdiction, allowing them to operate in the entire U.S. rather than applying for 49 different state licenses separately. The DCEA will also supposedly allow for certain types of Initial Coin Offerings (ICO’s).
If approved by Congress, the act will serve as a regulatory body for cryptocurrency, creating legal clarity for token issuers and lowering the barrier to entry for exchanges hoping to operate in a compliant manner. The DCEA will not define particular rules on how exchanges could comply with the new law, but rather describe the requirements connected to this activity and allow exchanges to find the best way to meet them.
“The proposed legislation builds on the existing commodity market practices required of Futures Commission Merchants (FCMs) to protect customer assets. DCEs would be required to segregate customer assets and hold them in separately regulated entities which are licensed to custody digital assets,” a description of the bill said.
The act was proposed in accordance with an earlier announcement by The Conference of State Bank Supervisors, who said that there may be plans in the works to streamline the application process for startups to avoid the need for more than 50 state and territory licenses in order to operate nationally.
The DCEA follows the idea of creating a federal banking regulator to bypass state-by-state regime entirely, instead of creating a national payment charter. It grants the CFTC primary supervisory authority, preempting the state money transmitter licensing regime entirely.
With the granted authority over the sector, the CFTC will supposedly be able to supervise pre-sale agreements to the public but will experience certain issues in finding and stopping wash trading as State regulators might not have the required oversight on order books or matching engines. Companies could voluntarily register but would not be required to shift from a state-level regime.
While at present, initial coin offerings fall under the Securities and Exchange Commission’s remit, the introduction of DCEA will subject companies to its regulatory supervision if the token which they deliver meets the definition of a digital commodity under the new bill. Token pre-sales might face restrictions of the initial trading or secondary market sales of the tokens to either individuals who participated in the original securities sales or under specific conditions.
The bill is unlikely to pass before the upcoming election but introducing it this early will allow for public feedback and suggestions on how to improve it.
“The introduction of this bill in this Congress is an important step in a process that is likely to play out more fully when the new Congress convenes in January,” said Peter Van Valkenburgh, director of research at Coin Center. “At that point we expect to see the bill re-introduced which would then allow for the process including possibly hearings and then committee consideration.”