SenatorLummisIntroducesLandmarkBitcoinBill：Here'sW

From the Senate Banking Committee, Senator Cynthia Lummis (R-WY) and Senator Kirsten Gillibrand (D-NY) have finally introduced their bipartisan Bitcoin legislation months after its announcement.

The "Responsible Financial Innovation Act," also known as the Lummis-Gillibrand bill, aims to encourage "responsible innovation" by integrating digital assets into existing laws and provide a clearer framework for the largely unregulated and decentralized crypto industry. The bill contains detailed definitions and regulations over 69 pages in length.

SEC and CFTC: The Watchdogs

The bill requires the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to take on major regulatory roles, placing the crypto industry under the protection of specific regulatory bodies.

The SEC will classify digital assets as securities, while the CFTC will oversee digital assets recognized as commodities. The wording of the bill will serve as the basis for evaluators to classify digital assets.

The Lummis-Gillibrand bill proposes scrutiny over digital asset holder's rights or powers and the asset's inherent purpose.

A "support asset" is defined as an intangible substitutable asset offered, sold, or otherwise provided to persons related to securities transactions through investment contracts. The bill uses the Howey Test to determine whether support assets offered to buyers through investment contracts are essentially securities.

Assets classified as securities must offer debt or equity in an enterprise entity, rights to liquidation or dividends, a share of profits or revenue from "the entrepreneurial or managerial efforts of others" or any other economic interests in the entity.

Digital assets that are not fully decentralized and benefit from the project team's "entrepreneurial and managerial" efforts, which determine the asset's value but are not debt or equity, or do not generate profits or other financial interests in the business entity itself will not be classified as securities if they submit two disclosures annually to the SEC.

This support asset being a commodity presupposition can be appealed in court.

The bill also grants the CFTC exclusive spot market jurisdiction over all non-security fungible assets, including support assets. Trading platforms need to be registered with the CFTC to conduct trading activities and comply with rules related to custody, customer protection, market manipulation prevention, and information sharing. The CFTC will be allowed to charge a small fee to digital asset trading platforms to offset the costs incurred by the organization.

CFTC's supervisory role over spot markets could pave the way for Bitcoin spot ETF in the United States. The SEC's opposition to most of its arguments against Bitcoin ETFs is due to the lack of regulation in spot markets and non-cooperation of trading platforms with regulatory bodies.

The bill also directs the SEC and the CFTC to research and report on the establishment of self-regulatory organizations (SROs) that can play a supplementary role in cooperation with emerging market regulators.

Finally, the "Responsible Financial Innovation Act" requires these two regulatory bodies to consult with the Treasury Secretary to develop a comprehensive set of guidelines for digital asset intermediaries for network security, including topics such as secure operations, risk identification and mitigation, sanctions evasion, money laundering, and terrorist financing. These agencies are expected to rule on these types of network security standards.

Energy

The Lummis-Gillibrand bill requires a study of the energy consumption of digital assets.

The study will seek to determine the best ways to encourage innovation while ensuring that these technologies work with other sectors of society to help the world get closer to climate goals by deploying more renewable and clean energy and reducing energy waste.

The Federal Energy Regulatory Commission will oversee the task, and it will consult with the CFTC and SEC on this study. One of its goals is to analyze the types and quantities of energy used for crypto mining.

Taxation

As Senator Lummis previously hinted, this legislation provides tax-free transactions for Bitcoin payments for goods and services under $200. This measure encourages the use of digital assets as an exchange medium. However, the bill specifies that for tax purposes, all transactions belonging to the same transaction or a series of related transactions will be treated as a single transaction and, therefore, the equivalent of a capital gain.

The bill also declares that miners should not be treated as brokers, and digital assets obtained from mining activities should not be considered income until they are converted to fiat currency.

In addition, the Lummis-Gillibrand bill specifies that digital asset lending agreements generally do not constitute taxable events, similar to securities lending transactions, and provides that certain decentralized autonomous organizations (DAOs) are commercial

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