U.S. lawmakers propose bill for regulatory clarity in crypto industry

Lawmakers in the United States have presented a draft bill aimed at providing regulatory clarity for cryptocurrency firms.

The proposed legislation, presented by the House Financial Services Committee and House Agriculture Committee, seeks to establish a framework that would categorize certain tokens as digital commodities.

The bill aims to curb the U.S. Securities and Exchange Commission’s (SEC) current approach to crypto regulation, which has been criticized for its lack of clear guidelines.

Under the proposed bill, the SEC would be prohibited from denying digital asset trading platforms the opportunity to register as regulated alternative trading systems.

This move would allow these platforms to offer “digital commodities and payment stablecoins.” The bill emphasizes that certain digital assets could be deemed digital commodities if “functional and considered decentralized.”

It also requires the SEC to provide a detailed analysis before objecting to a firm’s classification as decentralized.

In addition, the draft legislation mandates the SEC to modify its rules to permit broker-dealers to custody digital assets, provided they meet specific requirements. Furthermore, the bill requires the SEC to develop rules that modernize regulations related to digital assets.

Coinbase chief legal officer Paul Grewal praised the draft bill, saying that it would establish a solid foundation for regulatory jurisdiction and definitions. However, Grewal stressed the need for a thorough review before the formal introduction of the bill.

The proposed legislation was introduced by Republican lawmakers Patrick McHenry and Glenn Thompson, chairs of the House Financial Services Committee and House Agriculture Committee, respectively.

While both Democrats and Republicans have agreed to take a bipartisan approach to crypto regulation, the bill did not include input from lawmakers on the Democratic side.

Regulatory crackdown

Blockchain providers and crypto exchanges have been reconsidering their services in the U.S. due to increased regulatory scrutiny over the past few years.

In February, Crypto exchange Kraken settled with the SEC for $30 million and ceased staking services for U.S. clients. The SEC argued that Kraken’s service qualified as a security, necessitating the appropriate licenses.

To comply with SEC orders, Kraken withdrew its validator nodes for U.S. clients just before Ethereum’s Shapella upgrade, triggering industry-wide discussions about the future of staking services in the country.

Coinbase is seeking clarity from the SEC through a filed petition regarding cryptocurrency guidance. CEO Brian Armstrong warned that the SEC’s efforts to restrict staking service providers could hinder retail staking in the U.S., potentially forcing platforms and providers to relocate offshore.

The crackdown on staking services poses a threat to the U.S., which houses the majority of Ethereum’s node operators. Recent data from Etherscan indicates a 20 percent decline in U.S.-based node operators in the past week.

Centralized staking providers, such as Coinbase and Binance, account for a significant portion of staked ETH. Danny Talwar, head of tax at Koinly, cautioned that if the SEC proceeds with its enforcement actions, these providers will likely seek opportunities outside the U.S. This may inadvertently benefit offshore exchanges with lax regulatory compliance, potentially compromising consumer protection.

While U.S. regulators target staking services, crypto advocates argue that high-yield lending interests and staking rewards should not be equated. However, the SEC seeks to categorize all staking services under a unified banner.