Simply put
- The recent draft of the House of Representatives’ Crypto Market Structure Bill seems ready to reduce SEC oversight on most crypto assets.
- This bill revises the Securities Act from the 1930s to exempt certain digital assets.
- It will also transfer oversight of secondary market transactions for many of these assets from the SEC to the CFTC.
The House Financial Services Committee shared a new draft discussing the crypto market structure legislation on Monday. Basically, this version of the bill would exempt many leading digital assets from SEC scrutiny.
The latest draft adds clarity to essential securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. This formally excludes “digital goods” from being classified as securities, thus falling outside the SEC’s jurisdiction.
It outlines digital products in a way that likely encompasses many well-known cryptocurrencies. Digital commodities are generated via blockchain technology and derive their value from that system, potentially offering governance rights or validating transactions.
Moreover, secondary market transactions for these “digital products” will be exempt, provided the asset is endorsed by the SEC as arising from a “mature blockchain system.”
This brings up the big question: What exactly qualifies as a “mature blockchain system”?
The bill describes it as a network where users can execute on-chain transactions, access services, manage nodes, and validate transactions. It must be open source, publicly accessible, automated, and not controlled by a single entity—unless for reasons like cybersecurity or maintenance. Also, no single party can own more than 20% of the token supply.
However, if the acquisition involves purchasing ownership of “issuer revenue, profit, or assets,” these specific exemptions for secondary transactions would not be applicable for digital goods linked to a mature blockchain.
In brief, the proposed legislation seems designed to exempt secondary transactions along with many popular cryptocurrencies. Tokens like Ethereum, Solana, XRP, BNB, and Cardano likely fit the definition of “digital products,” and their underlying networks appear to meet the criteria for “mature blockchain systems.”
Consequently, these digital assets would fall under CFTC regulations.
Yet, there are still uncertainties around tokens such as XRP. This token was partially created by Ripple’s founder, who now controls more than 20% of XRP’s supply. This raises doubts about whether secondary transactions for XRP would be exempt under securities law. Additionally, much of XRP is held in escrow, which may complicate the definition of “beneficial ownership.”
Interestingly, the bill suggests that tokens issued before the law’s enactment, like XRP, may be exempt from SEC oversight on a case-by-case basis, even if they only partially fulfill the criteria of a mature blockchain system.
At the time of writing, attempts to reach both Ripple and a spokesperson for the House Financial Services Committee were unsuccessful.
The new Market Structure Bill is set to be discussed further during the House Financial Services Committee’s crypto-focused meeting on Tuesday.
Democrats on the committee are frustrated with Republican refusals to include provisions that would prevent a former president from engaging with crypto ventures while in office; some plan to walk out in protest.
