There appears to be no shortage of interest in cryptocurrency and blockchain policy in D.C. as Members in the House of Representatives and U.S. Senators have introduced a total of 32 bills in the 116th Congress. Thanks to Facebook’s introduction of Project Libra, ongoing efforts to achieve regulatory clarity for the industry, and the novel concept of a U.S. digital dollar, the level of interest on Capitol Hill appears to have grown beyond what has typically been just a handful of legislators.
Below is a chart and a high-level summary of the various Congressional bills. Twelve bills address the use of cryptocurrency in potential terrorism, money laundering, human, and sex trafficking. Thirteen bills focus on the regulatory framework and treatment of cryptocurrency and blockchain. Five bills promote ways blockchain technology could be used by the U.S. Government and the two newest bills cover the concept of a digital dollar.
Use of Cryptocurrency In Potential Terrorism, Money Laundering, And Human And Sex Trafficking
For the narratives driving some of this legislation, broad concerns in Congress regarding the potential for cryptocurrency use by bad actors seems to have been a primary concern in 2019. The bills cover the use of cryptocurrency by terrorists, money launderers and human and sex traffickers. In addition, one bill addresses how foreign adversaries, such as Venezuela, look to avoid economic sanctions by creating their own cryptocurrency.
Three of the bills focus on ways to empower bank examiners and regulatory agencies use blockchain, AI, and digital identity technologies to help detect criminal activities involving cryptocurrencies. One bill called the ‘Defending American Security From Kremlin Aggression Act’ introduced by Senator Lindsey Graham (R-SC), actually looks ‘...to promote international efforts to protect financial institutions and cryptocurrency exchanges from cyber theft.’ This takes a different approach than focusing on how cryptocurrency use might be used by criminals, and instead elevates crypto exchanges to the same level of importance as financial institutions on the geopolitical stage.
Senator Lindsey Graham also introduced the EARN IT Act, that has provoked a great deal of concern regarding the future of end-to-end encryption as well as legal immunities that have protected internet platforms in the past. Companies such as Amazon AMZN, and Google GOOGL have been able to flourish to the size they are today thanks to Section 230 of the Communications Decency Act. It seems Senator Graham and others now believe that Big Tech has grown so big and influential, this immunity needs to be weakened fo public policy concerns; however, for blockchain platforms in their nascent growth stages, eliminating this concept would prove a deterrent for the sector.
Regulatory Framework And Treatment Of Cryptocurrency And Blockchain
The highest number of bills in any category covers the regulatory treatment of blockchain and cryptocurrency as well as the tax treatment of crypto.
Facebook’s Libra Project ended up sparking a few bills that followed as a backlash to the prospect of a giant social media company introducing a global currency into the U.S. and the world. Although Facebook argued against the notion that it was a security, the ‘Managed Securities Are Stablecoins Act’ introduced by Congresswoman Sylvia Garcia (D-TX) and Congressman Lance Gooden (R-TX) aimed to ensure the basket of currencies backing the Libra coin would be treated as just that. Recent news reporting how Libra has moved away from the basket of currencies concept might have been influenced by the prospect of unfavorable treatment as a security.
While the prior bill looked to classify the offering of Libra as securities, the ‘Keeping Big Tech Out Of Finance’ Act as introduced by Representative Jesús “Chuy” García (D-IL), is much more direct in simply not allowing a large social media platform from engaging in financial activities. In addition, Garcia introduced another bill called the ‘Protecting Consumers From Market Manipulation Act’, that has an interesting approach to crypto regulation not seen before.
The bill requires the Financial Stability Oversight Council (FSOC) to consider treatment of digital currencies as a ‘designated financial market utility’. In addition, it would require any non-financial company such as Facebook that enjoys a minimum level of profits from digital currencies, to become a Bank Holding Company supervised by the Federal Reserve. Hypothetically, Libra could then be considered systemically important to the financial system and undergo the highest level of regulatory scrutiny as well as additional regulatory reporting requirements as a result.
The Crypto-Currency Act of 2020 was introduced by Representative Paul Gosar (R-AZ) as a way to regulate crypto by economic function while the Token Taxonomy Act, sponsored by Representative Warren Davidson (R-OH), focuses on a technological approach to regulation. Both of these bills look to divide up the responsibility of regulation amongst a few different agencies, while the bill from Rep. García (D-IL) would essentially make the Federal Reserve as a sole regulator for cryptocurrencies.
Promoting The Use Of Blockchain Technology By The U.S. Government
Congress also looks to support the growth of blockchain technology under the broader consideration of how it may impact other sectors of the economy beyond cryptocurrency. The Blockchain Promotion Act sponsored by Senator Todd Young (R-IN) and Senator Ed Markey (D-MA) is already out of Committee and awaits a vote on the Senate floor. The bill directs the Department of Commerce to establish a Blockchain Working Group to submit a report to Congress which contains a recommended definition of the distributed ledger technology commonly referred to as blockchain technology. Additionally, the Blockchain Working Group is to conduct a study to examine a range of potential applications - including non-financial applications - for blockchain technology.
In addition, bills in this category include how blockchain technology could be used for better hospital data security for endemic fungal disease research to the inclusion of a briefing by the Department of Defense to the Armed Services Committees on potential use of blockchain technology. The required briefing was an amendment in last year’s NDAA by Congressman Darren Soto (D-FL) that became law on December 15, 2019.
U.S. Central Bank Digital Currency And Digital Dollar
Finally, as a new category added with two bills that include a new term called the ‘digital dollar’, the tracking of ‘central bank digital currency’ legislation has been developed. The first bill introduced was the ‘Banking For All Act’ by Senator Sherrod Brown (D-OH) and the second and latest bill concerning digital currency was the ‘Automatic BOOST To Communities Act’ introduced by Representative Rashida Tlaib (D-MI) and Representative Pramila Jayapal (D-WA). Both bills focused on faster delivery of economic stimulus benefits to Americans in light of COVID-19.
It is likely that more legislation on the topic of central bank digital currencies will be a growing area as Congress looks to address this subject. It is also fair to note that as cryptocurrency and blockchain continue to grow in prominence around the world, a similar volume of legislation for the subject matter can be expected in the 117th Congress as well.