House Financial Services Committee Proposes New Cryptocurrency Legislation
On Monday, the House Financial Services Committee unveiled its latest version of legislation aimed at redefining the regulatory framework for cryptocurrencies. This proposed bill seeks to modify existing U.S. securities laws, potentially freeing a majority of leading digital currencies from the scrutiny of the Securities and Exchange Commission (SEC).
Key Changes in Regulation
Among the significant changes proposed is the introduction of terminology that would formally categorize certain digital assets as “digital commodities,” thereby removing them from what constitutes a security under foundational legal texts such as the Securities Act of 1933 and the Securities Exchange Act of 1934. This new classification could encompass many widely-utilized cryptocurrencies, as the definition of a digital commodity includes:
- Assets that can be generated on blockchain platforms
- Hold inherent value from those platforms
- Provide voting rights in governance decisions
- Are utilized to validate transactions
Moreover, trading in these “digital commodities” on secondary markets would also escape SEC oversight, provided these assets come from what the bill considers a “mature blockchain system.” This term is specified in the draft as a network supporting on-chain transactions, featuring open public access and extensive automation, which must not be controlled or altered by any single entity—except for necessary cybersecurity or maintenance interventions. Additionally, for a blockchain to qualify, no single entity can own more than 20% of the cryptocurrency’s total supply.
Exemptions and Notable Examples
However, an exclusion from the regulations applies if transactions entail acquiring rights to the issuer’s revenues, profits, or assets, which are labeled as institutional offerings. Essentially, the proposed changes suggest that not only would the initial issuance of many popular cryptocurrencies be exempt from SEC regulation, but so too would be their secondary trading. Notable examples that likely fit the new definition include:
- Ethereum
- Solana
- XRP
- BNB
- Cardano
All of which generally conform to the attributes of a “mature blockchain system.” Under this new framework, oversight would then shift to the Commodity Futures Trading Commission (CFTC).
Concerns Regarding Ripple and XRP
Yet, the status of tokens like XRP raises important questions. Developed partially by Ripple’s founders, Ripple holds a dominant share of XRP’s total supply, which could disqualify XRP’s secondary trading from these exemptions due to ownership limitations outlined in the bill. Much of Ripple’s XRP is stored in escrow, complicating the interpretation of beneficial ownership.
Additionally, tokens that existed prior to the adoption of the new legislation, including XRP, could still be evaluated by the SEC on a case-by-case basis for potential exemption, even if they fulfill only part of the criteria for mature blockchain systems.
Anticipated Tensions and Future Discussions
The introduction of this new legislative draft is timely as the House Financial Services Committee prepares for a session on cryptocurrency regulation set for Tuesday. Tensions are anticipated as Democratic members plan to stage a walkout, protesting against Republican opposition to include provisions preventing the President from engaging in cryptocurrency activities while in office.
“This protest action was initially reported by Punchbowl News.”
