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Senate Bill Defines Bitcoin, Ether As Digital Commodities To Be Regulated By CFTC – Commodities/Derivatives/Stock Exchanges

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Following the announcement DOJ/SEC enforcement actions alleged
insider trading against a former Coinbase employee, many cried foul
at the perceived “regulation by enforcement.” The SEC
Complaint, alleged – for the first time – that certain
Ethereum-based cryptocurrency tokens were securities. But as anyone
familiar with the crypto world knows, things move quickly….

On August 3, 2022, a bi-partisan group of Senators introduced
the Digital Commodities Consumer Protection Act of 2022
(“DCCPA”). The DCCPA gives the Commodity Futures Trading
Commission (“CFTC”) exclusive jurisdiction to regulate
the trading of “digital commodities.” Significantly,
Bitcoin and Ether were specifically defined as digital
commodities.

One of the DCCPA’s sponsors, Senator John Boozman, aptly
described the current regulatory landscape in the crypto world as
“a patchwork of regulations at the state level.” The
DCCPA aims to resolve that lackluster regulatory environment by, as
Senator Debbie Stabenow explained, “closing regulatory gaps
and requiring that these markets operate under straightforward
rules that protect customers and keep our financial system
safe.”

Here are just a few of the highlights from the DCCPA:

  • DCCPA Defines Digital Commodity: A
    “fungible digital form of personal property that can be
    possessed and transferred person-to-person without necessary
    reliance on an intermediary.” The DCCPA specifically defines
    Bitcoin and Ether as digital commodities. Digital
    Commodities do not include physical commodities, securities, or
    digital currency backed by the US government. It also appears this
    definition would not include NFTs. See
    https://www.mintz.com/insights-center/viewpoints/2166/2022-08-02-nfts-flash-crypto-pan-or-virtual-gold-part-1

  • CFTC Registration: Requiring all digital
    commodity platforms to register with the CFTC. This includes
    trading facilities, brokers, dealers, and custodians. This
    means exchanges allowing individuals to trade Bitcoin and Ether
    must register with the CFTC
    . Mining activity alone does
    not trigger registration requirements as a digital commodity
    platform.

  • Jurisdiction: CFTS has exclusive jurisdiction
    over digital commodity trades. BUT the DCCPA recognize that other
    federal regulatory agencies have a role to play in regulating
    digital assets that are not commodities, but function more like
    securities or forms of payment.

  • BSA/AML: Establishes digital commodity
    platforms as financial institutions for purposes of the Bank
    Secrecy Act.

  • Digital Commodity Platform Compliance
    Measures
    : Prohibits abusive trading practices, requires
    cybersecurity programs, mandates reporting of suspicious
    transactions, and imposes advertising and consumer protection
    standards

Although the DCCPA is a long way from becoming law, it is an
important first step in filling the regulatory void that the crypto
world has thrived in, or thrived despite, for years.

It also remains to be seen how the DCCPA’s grant of
exclusive authority to the CFTC to regulate digital commodities
like Bitcoin and Ether will impact the SEC’s regulatory reach.
Are we poised to see a regulatory clash between the CFTC and the
SEC over whether a particular token is a commodity or a
security?

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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