Two bills introduced last week looked to solidify the roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission — respectively the regulators for securities and commodities in the United States. The bills featured many of the usual suspects in legislation touching on crypto but one less familiar face was U.S. Representative Mike Conaway (R-TX).
Currently serving as the ranking member of the House Agriculture Committee, Conaway has been in Congress since 2005, predating Bitcoin’s whitepaper. His tenure has not been especially crypto-heavy. Nonetheless, he’s behind a bill that could transform how the U.S. handles crypto exchanges, which is important because it’s the Ag Committee that governs the CFTC.
Federal licensing for crypto exchanges
The Digital Commodity Exchange Act looks to give crypto exchanges the option to register with the CFTC, a national regulator, rather than going state-by-state to get money transmitter or money service provider licensing. “We got the patchwork of state-based regulations that are really hard to comply with,” Conaway explained to Cointelegraph.
The reason that crypto exchanges have had such a time getting licensing is due to general uncertainty as to what exactly to call cryptocurrencies themselves. The Digital Commodity Exchange act would move the standards more in the direction of calling them commodities.
New definitions for new assets
Moreover, the bill, alongside the Securities Clarity Act that Rep. Tom Emmer (R-MN) has introduced to the House Financial Services Committee, would put together a framework that assumes that certain new crypto assets are treated as commodities once they are distributed. Conaway explained to Cointelegraph:
“If it meets our definition, it would automatically fall into the category of commodity. […] We have no idea what kind of assets are going to develop over time. When you put new rules in place they’re never dynamic enough to accommodate what’s going on.”
The specifics of that definition may well get murky. The bill defines a “digital commodity” as:
“Any form of fungible intangible personal property that can be exclusively possessed and transferred person to person without necessary reliance on an intermediary, and which does not represent a financial interest in a company, partnership, or investment vehicle.”
Concepts similar to “representing a financial interest in a company” are critical to existing securities law and are, consequently, the subject of their fair share of debate.
The bill, according to Conaway, saw its impetus in 2018, around the time that LabCFTC founder Daniel Gorfine testified before the Agriculture Committee. “We did it the old-fashioned way, we had the hearing before we had the legislation,” Conaway joked.
Commodities vs. securities
But why does it matter if the CFTC runs the show? The CFTC is more of a principles-based regulator, Conaway noted. The idea is that commodities operate independent of a third party who could potentially run a swindle on investors. If you invest in oil futures, the price might tank — as it famously did in April — but you can’t blame that on BP.
The role of the SEC in crypto has been controversial, especially following the commission’s clampdown on Telegram’s GRAM distribution. “We’re trying to distinguish between what looks like a securities offering, which is clearly the SEC’s deal, and the ongoing trading of assets,” Conaway said. Effectively, that would mean reinforcing the SAFT Framework of dividing initial securities offerings from tokens, a format that many saw to be a thing of the past.
Outlook for the bill in the Ag Committee
Currently, Conaway’s bill has co-sponsorship from two other Republicans on the Agriculture Committee, as well as several members of the Blockchain Caucus. But what does that mean for getting the committee’s democrats on-board?
“We’ve had a couple of members of the committee that were really close to wanting to sign onto the bill,” Conaway said “We think that we’ll wind up with good bipartisan support.” He did not specify what stopped initial support, but things have been contentious around Congress lately.
Regardless, the bill will live on past Conaway’s time on the committee. This Congress is ending and he, at 72, is not running again. “It’s beyond the pale. My replacement is already in place,” he said.
Kristin Smith, head of the Blockchain Association, noted that the new legislation is a major step, but certainly will see updates before possibly becoming law. She nonetheless described it as:
“The first time we’ve seen a proposal of a regulatory framework for how we can ensure that the markets are strong and also carve out a regulated space for these digital commodities. So these are obviously first proposals. And at the end of the Congress, we don’t expect any immediate action.”
Earlier today, the CFTC filed charges against a trading platform that was offering futures in Bitcoin, Ether and Litecoin to U.S. investors without registering in the country. While regulators have acknowledged Bitcoin to be a commodity for several years, Ether and Litecoin have operated with less certainty.