The Digital Commodity Exchange Act of 2022(DCEA), introduced by Republican representatives Glenn Thompson of Pennsylvania and Tom Emmer of Minnesota, along with Democratic representatives Darren Soto of Florida and Ro Khanna of California, would create a definition for “digital commodity” and allow the Commodity Futures Trading Commission (CFTC) to oversee companies issuing or letting people trade certain tokens, while having the Securities and Exchange Commission (SEC) continue to oversee tokens that fall under U.S. securities laws.
It is critical that market participants and blockchain entrepreneurs consider the effects of emerging regulation and the possible benefit of implementing an affirmative compliance program to best avail themselves of existing and developing infrastructure.
As Washington policymakers wrangle over how to oversee digital assets, including cryptocurrencies, the DCEA would assign oversight responsibilities to a regulator that has been to date seen as more receptive to the needs of blockchain industry concerns than the SEC.
The DCEA would create an elective registration option for crypto exchanges to register with the CFTC. To encourage registration, platforms that elect to register will be able to offer leveraged trading and digital commodities that were distributed to individuals before being available to the public.
At the heart of the matter is how federal regulators classify digital assets. Gensler and a number of Democratic lawmakers skeptical of blockchain technology maintain that most crypto coins are effectively securities, so their issuers need to register with the SEC and offer regular public disclosures to inform investors. Alternatively, crypto industry leaders and the sponsors of the DCEA assert that most coins are better categorized as commodities.
“Where you have cases where these cryptocurrencies look more like gold or dollars or currencies than securities, then they should be treated the same way,” Representative Khanna said. “And that’s all this bill is saying: When you have highly diffuse control over an asset, then it should be regulated by the CFTC.”
The Biden administration last month ordered a sweeping review of the government’s approach to crypto, mandating reports on everything from its implications for financial stability to its national security risks. The DCEA underscores the degree to which policymakers are starting from scratch in trying to determine how to fit emerging technologies into regulatory structures dating back nearly a century.
© 2022 Dinsmore & Shohl LLP. All rights reserved.National Law Review, Volume XII, Number 126