ROSANA B. FERNANDEZ—Since its inception in 2009, governments all over the world have been struggling with how to regulate cryptocurrencies. Congress seems to have come up with a solution: calling it a security.
As Congress prepared for their holiday recess, the House of Representatives introduced the “Cryptocurrency Act of 2020.” The bill’s stated purpose is “to clarify which Federal agencies regulate digital assets,” among other things. The bill proposes that three agencies, namely the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the Financial Crimes Enforcement Network (FinCEN), be charged with implementing ways to regulate cryptocurrencies and inform the public of any Federal licenses, certification, or registrations needed to create or trade in such assets.
The bill splits what it calls “digital assets” into three categories: (1) crypto-currencies, (2) crypto-commodities, and (3) crypto-securities. The CFTC, SEC, and FinCEN are each assigned one of the aforementioned categories and made the sole agency with the power to regulate it. However, the definitions set out by the bill create boundary concerns making it likely that it will create more confusion instead of clarity for regulatory purposes.
The introduction of the bill comes after companies like Facebook and countries like Venezuela announced their intentions to establish their own cryptocurrencies. In early 2018, Venezuelan President, Nicolás Maduro announced Venezuela would be launching its own cryptocurrency, the Petro. The Venezuelan cryptocurrency, which has since been launched worldwide, is allegedly backed by Venezuela’s oil reserve. This decision shows the Venezuelan government’s lack of understanding of how cryptocurrencies’ peer-to-peer blockchain technology works. Nevertheless, the Petro is said to be an attempt by the Venezuelan government to circumvent the crippling sanctions imposed against it by the United States.
Similarly, in June 2019, Facebook announced its plans to create a new digital currency, the Libra, as well as a new financial system to transform how money circulates worldwide. Facebook’s new subsidiary, Calibra, plans on providing a digital wallet for storing and exchanging the Libra. However, Facebook has made clear that any financial information from Calibra’s digital wallet will not be used for ad targeting on any of its other platforms, as it plans to keep the two divisions entirely separate. The Libra is expected to be rolled out sometime in the middle of this year.
Cryptocurrency experts seem to have no good feelings about the proposed bill. Critics of the bill argue the proposed definitions are overly broad, creating greater confusion. Most notably, the lack of fundamental understanding as to what cryptocurrencies are and how they work is apparent by the bill’s failure to elaborate on the proposed categories and how they differ. Until Congress takes the time to truly understand cryptocurrencies, their system, and what it is intended to do, bills such as this one are unlikely to bode well with the public.
Ultimately, the effects of the “Cryptocurrency Act 2020” have meaningful implications for cryptocurrencies but leave much to be desired by cryptocurrency users. Whether it actually gains any traction in Congress is yet to be determined.