A major element of the Responsible Financial Innovation Act introduced to the U.S. Senate today is the classification of Bitcoin BTC/USD, Ethereum ETH/USD and a plethora of cryptocurrencies as commodities. Over the past few days, a leaked version of the bill raised eyebrows, in particular, the status and under whom the jurisdiction of these cryptocurrencies will be.
What Happened: Amongst the distinctions made in this new legislation, a significant component is how it defines different digital currencies and assets.
It creates a clear division between what assets may be deemed commodities and securities. The legislation defines most major cryptocurrencies, such as Bitcoin and Ethereum, as commodities. Furthermore, it assigns the Commodities Futures Trading Commission (CFTC) the power to regulate these commodities over the Securities and Exchange Commission (SEC).
An important part of the legislation was how it distinguished between what cryptocurrencies were to be deemed commodities and which ones to be deemed securities. According to Yahoo Finance, major tokens such as Solana SOL/USD and Cardano ADA/USD were defined in the legislation to be commodities, unless some part of their intrinsic functionality or real-world use indicated them to be under the scope of the SEC. The legislation further clarified that under certain contingencies, such as dividends being received as a result of management or the provision of a revenue-sharing model, cryptocurrencies could be defined to be securities.
Why It’s Important: The past few years have seen a significant degree of debate and dialogue over digital assets. The purview of digital assets has been in a state of flux between different governmental bodies, such as the CFTC and the SEC. As a result, multi-sided involvement created barriers to effective cryptocurrency regulation. In other words, as the very definition of these digital assets and the purview of whom they were under was uncertain, there was little room for formal adoption. This legislation is valuable and critical in its ability to define these assets as commodities, assign an agency to hold jurisdiction over these assets and pave the way for mainstream regulation.
What’s Next: In order for cryptocurrencies to truly expand to their highest possible market reach and for the technology underlying these digital assets to fully provide benefits to global economies, regulation is critical. In order for there to be effective regulation, there must be clearly defined terms and distinctly assigned overseeing bodies.
This legislation hopes to achieve the same and if this direction is maintained, regulation will follow, implicating mainstream adoption and the future growth of markets.