As 2019 came to a close, and pundits looked back on the tumult of regulatory changes that shaped the last decade, lawmakers slipped in a few final bills. One, introduced in late December by U.S. Congressman Paul Gosar from Arizona, has the potential to make waves in the financial world. The Crypto-Currency Act of 2020 was drafted to add clarity to the cryptocurrency industry and provide a clear framework for crypto regulations in the U.S.

The cryptocurrency industry has been in need of protocols for defining digital assets and delineating the duties and responsibilities of federal regulators for some time now. With tax enforcement on cryptocurrency investments and cryptocurrency disputes ramping up over the last year, the absence of clear guidelines has been even more glaring.

This bill attempts to address many of the gaps in current cryptocurrency oversight. In it, three U.S. agencies—Securities and Exchange Commission (SEC), Financial Crimes Enforcement Network (FinCEN) and the Commodity Futures Trading Commission (CFTC)—will gain jurisdiction over cryptocurrency regulation. It will require each agency to maintain and make available to the public a current list of all federal licenses, certifications and registrations required to create or trade in digital assets across the following:

  • Crypto-Commodity, regulated by CFTC: “economic goods or services that have full or substantial fungibility; the markets treat with no regard as to who produced the goods or services; and rest on a blockchain or decentralized cryptographic ledger.”
  • Crypto-Currency, regulated by FinCEN: “representations of United States currency or synthetic derivatives resting on a blockchain or decentralized cryptographic ledger, including such representations or synthetic derivatives that are reserve-backed digital assets that are fully collateralized in a correspondent banking account, such as stablecoins; and synthetic derivatives that are determined by decentralized oracles or smart contracts; and collateralized by crypto-commodities, other crypto-currencies, or crypto-securities.”
  • Crypto-Securities, regulated by the SEC: “all debt, equity, and derivative instruments that rest on a blockchain or decentralized cryptographic ledger.”

To date, cryptocurrency activities in the U.S. have been under the purview of the SEC and CFTC. However, FinCEN, a department within the U.S. Treasury, is considered more of a law enforcement agency than a traditional financial services regulator. This is notable in the proposed bill. It would provide the Secretary of the Treasury, acting through FinCEN, powers to enforce cryptocurrency law (and transaction tracing) in a similar manner as it does among traditional financial institutions.

This bill is only one of many crypto-related U.S. legislative efforts that came forth in 2019. The Libra announcement spurred a flurry of activity, including numerous senators calling for Libra to be categorized as a security. Earlier in the year, a group of bipartisan U.S. Senators proposed a bill that would place all stablecoins into the securities category and under supervision of the SEC. To date, none of the proposed legislation has been approved. Industry experts are speculating about the motivation of these bills, and whether they are attempts to further control the major players in tech and financial services.

Increased legislative activities are on the horizon in 2020. While the Crypto-Currency Act of 2020 includes aspirational reporting and accountability goals that will be heavily debated among lawmakers and the industry, and does not solve all of the challenges around categorization and regulation of various form of digital currencies, it is an important step in the right direction. Guidance is essential for this industry to gain wide adoption, and both lawmakers and financial institutions will need to move quickly to keep pace with continued innovation.