Amidst the widespread debate around crypto regulation, a pair of senators from both parties in the United States, who wrote important legislation last year, are bringing it back with a new version that gives the SEC a less important role than its chair Gary Gensler wants.
While the crypto bill aims to avoid another FTX-style collapse and its impact, institutional investors remain sceptical about those plans.
"First, we are not sure if there will be a consensus on this anytime soon, which makes it very difficult for us to base our investment decisions on it. Second, there is no foundation or clarity on how to regulate digital assets. With the SEC keen on getting this under its ambit, scepticism remains," said a chief investment officer in London.
Senators Cynthia Lummis and Kirsten Gillibrand will reintroduce the legislation to create a unified regulatory framework for digital assets.
On July 12, approximately a year after it was tabled in the previous session of Congress, US senators stated they would bring the Responsible Financial Innovation Act to the Senate.
Lummis is a Republican and Gillibrand a Democrat; they co-sponsored a bill to clarify the responsibilities of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in the regulation of digital assets and the protection of investors and consumers.
That was before the latest news on a court ruling favouring Ripple Lab against the SEC on Thursday.
A US court ruled that Ripple did not violate any securities law when it listed the XRP token on exchanges, which the SEC accused the firm of.
For now, though, while that see-saw continues between the SEC and the crypto industry, investors are unsure of a solution anytime soon.
While US regulation of the cryptocurrency business requires action from Congress, and this measure is the most comprehensive effort to date to come from the Senate.
The first bill introduced by the two lawmakers failed to make substantial forward in the Senate Banking Committee last year and remains to be seen this year too.
Broadly, legislators and business leaders in the US have criticised regulators for failing to provide enough guidance to ensure that businesses may operate freely from the threat of enforcement actions and other crackdowns.
At a time when some elected officials have politicised aspects of the crypto space, such as highlighting illicit uses of digital assets and when Florida Governor and 2024 presidential candidate Ron DeSantis called for a ban on central bank digital currencies, the Lummis-Gillibrand bill has been praised for taking bipartisan action.
In the upgraded version, the most notable aspect of this law is the line it establishes between securities monitoring and everything else. This long-awaited dividing line would give the SEC and CFTC their marching orders in the realm of cryptocurrencies.
In general, it states that investments in assets that do not provide the investor with a financial interest in a business should not be regarded as securities, even if such assets benefit from entrepreneurial and managerial efforts that determine the value of the assets.
Even while issuers of cryptos would be required to file reports with the SEC every six months, the agency would have no authority over their tokens so long as they did not meet the definition of debt, equity, or other forms of ownership specified in the law.
"While the attempt to bring clarity to the extremely complex situation for crypto firms in the US is a welcome sign, many questions remain, and the obstacles to cross for the bill to turn into something more meaningful are many," said an investment strategist at a large asset management firm.