Will Biden Veto New Crypto Bill in US?

The world's attention is now focused on U.S. financial markets and the position of local regulators - after all, they hold the keys to liquidity. This, of course, also applies to cryptocurrencies. The other day, the SEC unexpectedly approved the Ethereum ETF, and we witnessed a real rally for this cryptocurrency. Moreover, for the first time in the history of the United States, Congress passed a law on cryptocurrencies - The Financial Innovation and Technology for the 21st Century Act. I would like to talk about it separately.

How has the Crypto Bill passed Congress?

The U.S. House has approved the first federal law regulating cryptocurrencies, which was supported by 279 congressmen. Only 133 Democrats and 3 Republicans have voted against it. The top nation makes new steps in favor of crypto faster than expected.

The bill got bipartisan support (almost half of democrats and all republicans) and has a good chance to get approval from the Senate also. Previously, the Senate approved a resolution canceling the SEC Bulletin about the storage of crypto assets - that resolution was approved in Congress with the support of only 21 democrats, but in the Senate, it had 60 votes against 38.

In short, the law will definitely, perhaps with some edits, be passed by the Senate. The only question is whether President Biden will veto it or not. He already has supported SEC’s chair Gary Gensler and criticized new legislation. However, Biden didn’t say anything about the possibility of a veto, so it's likely he won't veto it.

Is it Worth to Read the whole Bill?

I began to study the text of the new law regulating cryptocurrencies in the U.S., and it's not easy. The law has 212 pages. You can say it is such a new American crypto bible. Overall, it's really not such an easy law to understand, and it's not necessary to read it unless you're a lawyer or blockchain entrepreneur doing business in the US.

To better understand the law, you can read the explanatory memorandum of the law developed by the U.S. Congressional Agriculture Committee. According to the bill's authors, nearly 20% of Americans already own digital assets, and almost 70% of existing digital assets must be recognized as commodities.

What is in the Bill?

The law effectively limits the SEC's authority to regulate cryptocurrencies in the U.S. and gives more power to the CFTC. In addition, it creates certain relaxations for DeFi.

The law text is a review of amendments and clarifications to existing laws, as well as instructions for regulators and a number of individual comments to existing legislation. However, each country has its own specifics of law, and lawmakers rely on them, forcing them to write amendments to old laws in the style of the previous ones. Especially in this case as The Securities Exchange Act (1933) and The Commodity Exchange Act (1936).

Part I of the law describes adding to the current U.S. regulations applicable to digital assets that already exist in U.S. legislation, including existing regulations from the SEC and the CFTC, such as the Securities Act of 1933 and the Commodity Exchange Act of 1936. These addings describe how the Commodity Exchange Act and the Securities Exchange Act should apply for the registration of crypto businesses.

Procedures for registering different types of digital assets and businesses are outlined in Parts II-V, respectively. Part II describes procedures for assets offered as a part of the investment contract, and Part III - describes sales of digital assets.

The law also defines more terms dedicated to digital assets such as: “alternative trading system”, “blockchain protocol”, “decentralized network”, ‘digital asset issuer’, ‘permitted payment stablecoin’, digital asset trading system and some other terms.

How does the law divide the powers of the SEC and CFTC?

The bill generally aligns with a liberal spirit for the crypto industry and opposes the SEC's repressive approach. It is worth elaborating on the term "decentralized network.” The Act transfers authority to the CFTC to regulate decentralized blockchains. The bill classifies a blockchain as decentralized if no person or its affiliate has control over 20 percent or more of a digital asset or voting rights in a digital asset. Accordingly, if the level of control of one of the participants is higher than 20%, the network is not considered decentralized.

The law also suggests that cryptocurrency spot trading isn’t regulated properly in the United States, and the CFTC would be empowered to regulate spot trading of digital commodities and their secondary trading. Thus, if this law is passed, much of the authority to regulate cryptocurrencies will shift to the CFTC.

Based on the bill text, the following types of crypto entities, such as digital commodity exchange, digital commodity broker, and digital commodity dealer, should be regulated by the CFTC and the Commodity Exchange Act. At the same time, the status of the digital asset trading system, digital asset broker, and digital asset dealer should be granted SEC approval. This information is described in Parts IV and V of the law, respectively.

It also has tasks from the House to the SEC and CFTC by harmonizing this legislation and defining some terms and procedures through the creation of the Joint Advisory Committee on Digital Assets. This includes ensuring that there is no duplication of licenses and control over persons affiliated with certain exchanges, cryptocurrencies, and protocols.

Position of the US Administration

Before the House voted on the crypto bill, the Biden administration published a statement that included the following passages: “In its current form lacks sufficient protections for consumers and investors who engage in certain digital asset transactions” and, “The Administration looks forward to continued collaboration with Congress on developing legislation for digital assets …and further time will be needed for such collaboration.” In this statement, there is nothing about the possibility of a veto. So President Biden can veto the law, but probably he won’t do it. This is also because the number of congressmen supporting the law continues to grow compared to how many lawmakers voted against the SEC Bulletin mentioned above.

And what about the SEC?

Gary Gensler has explained his crypto regulation approach in a special statement published on the SEC website. He thinks that crypto companies issue their own securities and hide them in the form of blockchain contracts and that the new bill will allow blockchain companies “don’t play by the rules” and avoid SEC regulation by having the status of digital commodities.

In particular, Gensler is concerned that the law will allow crypto exchanges not to obtain brokerage licenses (but they do not need to obtain them now) and allow non-accredited investors to purchase crypto for 10% of the portfolio without the issuer's obligation to disclose information. The SEC chair also is radically opposed against exemption of the Howey Test for crypto.

Perhaps some of the concerns in Gensler's letter to lawmakers are worth considering, but the apocalyptic picture he paints is just an excuse for the SEC to continue to make any and all decisions regarding crypto assets without control.

Conclusion

It can be stated that upcoming regulations for cryptocurrencies at the federal level in the world's largest crypto economy are positive and can bring more transparency to the industry. Certain provisions of the law, which Gensler criticizes, may be adjusted during the discussion in the Senate. However, one way or another, lawmakers from both parties have taken into account the main message from Coinbase and other companies: transparent regulation and licensing procedures for crypto assets are essential.

Another interesting topic - which still isn’t mentioned in the law - is FinCEN and its regulating powers for crypto. However, FinCEN is currently regulating VASPs as money transmitters and money exchange businesses in the UA. I wonder how the SEC, CFTC, and FinCEN will coordinate their regulatory powers. I guess we'll find out soon enough.

If you are interested in getting more crypto regulation insights, you can watch the global crypto regulation rating here and get updates on my X account.