Crypto bill passes congressional committee in victory for industry

© Reuters. FILE PHOTO: The U.S. Capitol building is seen in Washington, U.S., April 6, 2023. REUTERS/Elizabeth Frantz/

By Hannah Lang

WASHINGTON (Reuters) -A key congressional committee on Wednesday advanced a bipartisan bill that aims to develop a regulatory framework for cryptocurrencies, a milestone for Capitol Hill in its efforts to codify federal oversight for the digital asset industry.

The crypto industry has been in the regulatory crosshairs since investors were burned last year by sudden collapses of Celsius Network, Voyager Digital, FTX and other companies.

The bill passed by the House Financial Services Committee would define when a cryptocurrency is a security or a commodity and expand the Commodity Futures Trading Commission's (CFTC) oversight of the crypto industry, while clarifying the Securities and Exchange Commission's jurisdiction, as many crypto advocates complain of the agency's perceived overreach.

A handful of Democrats, including Reps. Jim Himes and Ritchie Torres, joined committee Republicans in voting for the bill. The House Agriculture Committee is scheduled to consider the same bill Thursday.

"As other jurisdictions like the UK, the [European Union], Singapore and Australia have moved forward with clear regulatory frameworks for digital assets, the United States is at risk of falling behind. We intend to change that today," said Representative Patrick McHenry, the Republican chair of the House Financial Services Committee, at the markup.

The markup - where legislation is debated and brought to a vote, paving the way for a full vote by the House of Representatives - is the first time a crypto regulatory bill was put to a vote in Congress, a victory for crypto lobbyists who have pushed lawmakers to provide regulatory clarity for the industry.

"Obviously we've had some important decisions come from the courts in the past, but this is by far the most significant legislative moment that we've had," said Kristin Smith, CEO of the Blockchain Association.

The bill has galvanized many in the crypto industry, who say that with Democrats' support, the bill could have a shot in the Senate.

"For anything to be sticky, it's going to need some bipartisan backing," said Miller Whitehouse-Levine, CEO of the DeFi Education Fund, a lobbying group focused on decentralized finance.

But some Democrats, including Representative Maxine Waters (NYSE:WAT), the top Democrat on the Financial Services committee, fiercely oppose the bill.

Waters said the bill would create more confusion and offer consumers and investors fewer protections than they have currently.

"This bill heeds the calls from the crypto industry while disregarding the views of the administration, the Securities and Exchange Commission and consumer and investor advocates," she said.

The measure may also face obstacles in the Democratic-led Senate, where the head of the Senate Banking Committee, Sherrod Brown, has said he is unsure if additional legislation to regulate crypto is necessary.

CLARITY ON TOKENS

Crypto companies started out in a regulatory gray area, but the SEC has steadily asserted its authority over the industry, arguing that most cryptocurrencies are securities and subject to investor protection rules. That effort escalated last month when the SEC sued crypto exchanges Coinbase (NASDAQ:COIN) and Binance for failing to register some crypto tokens. The pair deny the allegations.

Most crypto companies dispute the SEC's jurisdiction, and have pushed Congress in recent months to write laws clarifying that cryptocurrencies are more akin to commodities than securities.

Lawmakers are also set to consider on Thursday a bill that would have the Federal Reserve write requirements for issuing stablecoins while preserving the authority of state regulators.

The bill was modified to address concerns from some Democrats, including Waters, that stablecoin issuers could evade stricter oversight by opting to be regulated under a state regime.

While McHenry in an interview this month told Politico he remained hopeful that he and Waters would reach an agreement on the bill, he also said a federal stablecoin regime is "not essential," adding that there are state frameworks already in place.

McHenry on Wednesday said he had "no news" on discussions with Waters on the stablecoin bill, but that the two were continuing negotiations.