IOTA co-founder: Lummis-Gillibrand is a blessing for the crypto industry

The bear market has been bad for cryptocurrency’s case against regulation. What comes next depends on how well we play ball, but Lummis–Gillibrand offers a favorable path forward.

There’s never a good time for a crypto winter, but it would be difficult to envision a worse time than right now.

Even before 70% of Bitcoin’s (BTC) value evaporated seemingly overnight, things were not going great in the court of public opinion. Negative sentiment was everywhere; a Twitter account documenting crypto bros taking it on the chin racked up hundreds of thousands of followers. Now the biggest crypto exchanges in the world are laying off full-time employees by the thousands, and the self-proclaimed “Cryptoqueen” has landed a spot on the United States Federal Bureau of Investigation’s Ten Most Wanted Fugitives list for defrauding investors out of $4 billion. Oof. The prosecution rests.

It’s easy to brush off crypto’s public-facing PR woes as being exactly that: an image problem. Looks aren’t everything. This is the domain of diamond hands, not useless hand-wringing. Leave the non-believers behind. We were never going to convince the hardcore detractors and incorrigible skeptics anyway. (The problem with this mindset, however reassuring its devil-may-care optimism, is that it always ends up advocating preaching to the choir as a viable strategy. It isn’t. It never has been.)

A faceless hoard of hardcore detractors and incorrigible skeptics have proven useful straw men since crypto’s early days. But upon closer examination and in the wake of the crash, the skeptics eager to bring us to heel are real people with real power, and they were watching us closely before that line went down, down, down.

This is happening on both sides of the Atlantic. In Washington, skepticism over crypto is increasingly the norm. Last September, Securities and Exchange Commission Chairman Gary Gensler compared stablecoins to “poker chips” and emphasized the need for Congress to increase its regulatory powers over crypto. Co-sponsored by Senators Kirsten Gillibrand (D) and Cynthia Lummis (R), an expansive regulatory bill called the Responsible Financial Innovation Act arrived on June 7, removed from the industry-shaking dip by days, not months. Another bipartisan proposal — led by Senators Debbie Stabenow (D) and John Boozman (R) — arrived in August.

From downturns to crackdowns

This bill is no symbolic gesture. It enjoys bipartisan support, for one thing, in a government where bipartisan support of anything is just about unheard of in recent years. The Commodity Futures Trading Commission, which Gillibrand helps oversee, would regulate crypto directly if (and likely when) the bill passes, reclassifying digital assets as commodities such as wheat or oil in the process.

The 69-page bill is so expansive that it may have to be broken up and passed incrementally. Lummis, it’s worth mentioning, isn’t anti-crypto. She actively invited crypto industry leaders to work with her on legislation, which bodes better for crypto on the whole than a push to simply enforce and expand existing SEC regulations.

The industry should take her up on this invitation. The Lummis–Gillibrand legislation — which is, quite frankly, preferable to the narrower Stabenow–Boozman bill — would give exclusive jurisdiction to the CFTC for digital assets, except for when the digital asset falls under the scope of securities regulation. It’s worth noting that, thus far, the CFTC has played much nicer than the SEC, which has been woefully inadequate at providing regulatory guidance, attempting to steer the industry through enforcement that, at times, borders on purely punitive.

The sooner we reach out, the better. Sensible regulation is not a bad thing for crypto, but hasty regulation could be. The fallout of this crash has the potential to create a sense of urgency among regulation-minded lawmakers, compelling them to respond and overcorrect with sweeping measures. From a regulatory perspective, the chill of this crypto winter and the failure of the market to protect investors in any way is proof that we can’t be left to our own devices. Active, open cooperation would circumvent this.

Cause for cautious optimism?

We already know what scorched earth legislation looks like, which is to say there’s precedent for an entire country just banning crypto mining wholesale. That’s unlikely to happen in the U.S. or the European Union, seeing as decentralized finance (DeFi) and traditional financial markets are by now very much entangled. In the most capitalist of terms, it wouldn’t be profitable for traditional investors and markets to do away with crypto.

But crypto was never going to get out of this scot-free. The sense of urgency created by this year’s crash will likely stymie the potential for more measured and considered regulations individually tailored to crypto’s needs. Had the crash not happened, lawmakers would’ve likely been more open to flexible, specifically designed measures.

That’s now in jeopardy. Calling crypto and DeFi a potential “risk to financial stability,” European Central Bank President Christine Lagarde is already pushing for a second, expanded version of the Markets in Crypto Assets framework that has just been formally passed. Whatever was overlooked and left unaddressed the first time, namely aspects of staking and lending, isn’t going to be missed a second time.

But DeFi has become something of a scapegoat. It took the brunt of the blame after this market crash, and some of that blame was misplaced. Prior to the crash, the centralized providers took excessive risks and were not transparent about how they were investing customer funds. Pure DeFi projects, where it was just a fully transparent smart contract on the blockchain, performed exactly as they were supposed to. As legislators on both sides of the pond eye it for regulation, now is the time to work with regulators to achieve balanced and sensible regulation and save DeFi’s skin in the process.

We can’t count on things to always just work out in our favor. Fears that the European Parliament’s Transfer of Funds Regulation (TOFR) would take a sledgehammer-over-scalpel approach to unhosted wallets and stymie machine economy development ended up being partially unfounded, at least for the meantime. Although it effectively enshrined the view that crypto transfers are riskier than other transfers, the TOFR’s harshest measures were diluted enough to keep unhosted wallets afloat. In any case, the legislation targeting unhosted wallets is now being shifted over to the draft of the Anti-Money Laundering regulation, where a more pragmatic approach is possible.

This is, in a way, good news. From a tech perspective, crypto and DeFi weren’t ready or able to oblige with the original version of the rules outlined in the TOFR. The adjustment bought us time — something that the crypto sphere won’t have if sweeping regulations come down hard and fast and without our input.

Perhaps there’s no use crying over (frozen) spilled milk. But this crash has changed the regulation game. I’m not trying to be a harbinger of doom here, but we need to be extremely proactive about approaching and working with legislators from here on out. The regulation timeline has accelerated. Now our technological development (along with our ability to adapt and negotiate) needs to kick into high gear, too.

Dominik Schiener is a co-founder and the chairman of the Iota Foundation, which oversees one of the largest cryptocurrency ecosystems in the world. The foundation’s mission is to support the research and development of new distributed ledger technologies, including the Iota Tangle. Dominik oversees partnerships and the overall realization of the project’s vision toward the machine economy.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Sen. Lummis: My legislation would empower the SEC to protect consumers

CFTC

Lummis-Gillibrand would allow the SEC to figure out which cryptocurrencies fall under its regulatory purview, leaving the rest to the CFTC.

The United States has been the global financial leader since World War II when the U.S. dollar became the world reserve currency. Consequently, Americans have enjoyed benefits like greater buying power, easier access to capital and low-interest rates—including on our national debt.

Unfortunately, we face a growing threat to that dominance, from our national debt on the one hand and China’s ascendance and their own digital currency on the other. If the U.S. dollar lost its position as the world reserve currency, it would mean higher U.S. interest payments, more expensive debt repayments and a skyrocketing deficit.

The best time to address a crisis is before it begins and the United States still has the opportunity to right our fiscal ship and set ourselves on course for continued financial leadership.

I believe digital assets are the place to start. Decentralized digital assets, like Bitcoin (BTC), offer users a way to invest in a store of value that governments cannot inflate away. The ledger technology undergirding it, called blockchain, has many incredible applications, from currency to tracking shipping and enabling smart contracts.

Runaway inflation is a government-made disaster (and not just our government is guilty). Deny and debase is the central planning policy we are seeing play out before our very eyes.
— Cynthia Lummis (@CynthiaMLummis) July 26, 2022

Since 2018, I’ve watched my home state of Wyoming become the national leader in digital asset regulation, giving innovators regulatory room to experiment while protecting consumers from scammers.

As a former state treasurer, I am excited by the possibilities of incorporating digital assets into the American financial system. I’ve been encouraged to see almost universal agreement from regulators, politicians and the digital asset industry that it’s time to bring digital assets into the regulatory perimeter. After last summer’s digital asset debate during consideration of the infrastructure bill, I believe it’s time to have a holistic conversation about how we want to bring in digital assets.

I partnered with Senator Kirsten Gillibrand to introduce the Responsible Financial Innovation Act as an opening salvo in our federal discussion about digital assets. It’s a holistic way to retain American financial leadership while safely incorporating innovation into our financial system.

As I see it, a handful of key things must be addressed to accomplish this goal. If we can come together to address these issues, we would give American innovators the regulatory certainty they need to keep driving our financial revolution while also protecting consumers from bad actors.

It starts with definitions. We set out generally applicable definitions for the digital asset industry and for regulators to understand and use. Before the introduction of the Lummis-Gillibrand Digital Asset Framework, these definitions did not exist in federal law. Innovators will know which laws they must follow, and regulators will have the guidance to treat different assets appropriately.

Clear definitions would remove unnecessary restrictions and nonsensical regulations, like those blocking people from investing in Bitcoin (BTC) and other digital assets for their retirement or those requiring digital asset miners and others from being forced to provide the IRS with user information they don’t have.

It is the duty of Congress to give authority to federal agencies. The Lummis-Gillibrand Digital Asset Framework allows the Securities and Exchange Commission to decide when a digital asset is a security like a stock or a commodity like gold. Meanwhile, the Commodity Futures Trading Commission will be allowed to regulate the spot market.

But this isn’t just about innovators. Congress must protect consumers, and Lummis-Gillibrand does just that. We must require innovators to provide potential customers with the information they need to make sound investment decisions. We must also give regulators the ability to punish scammers. Our plan protects consumers without stifling innovation.

We also recognize that discussions of stablecoins and central bank digital currencies are ongoing. The Responsible Financial Innovation Act does not provide for a central bank digital currency but addresses the issue of stablecoins. Banks should be able to issue stablecoins, and Congress must follow Wyoming’s example and require that these be 100% reserved. This policy works in the Cowboy State, and we should bring that protection to the federal level.

The Lummis-Gillibrand Digital Asset Framework would do all of these things. While we are only at the beginning of our congressional conversation about digital assets, I believe our bill will provide Congress with an appropriate next step as we move from theoretical to actual digital asset legislation. Ultimately, we must act. Doing so will help cement American financial leadership for years to come.

Sen. Cynthia Lummis is a Republican first elected to the United States Senate from Wyoming in 2020. She served previously as its U.S. representative from 2009–17 and as its state treasurer from 1999–2007.

Lummis-Gillibrand