Simply put
- The Senate has released a preliminary draft of the Crypto Market Structure Act.
- Last week, the House passed a similar bill, referred to as the Clarity Act.
- While there are notable differences in the Senate’s version, both bills share a common objective, notably impacting crypto startups and future token sales via ICOs.
The Senate issued a preliminary draft of the Crypto Market Structure Act just yesterday. It has bipartisan backing, and while there are differences, a common thread persists: crypto startups could soon find a legitimate avenue for raising funds, especially through ICOs, which is quite promising.
This draft, released by the Senate Banking Committee earlier this week, centers around securities and the SEC. The counterpart focusing on commodities and the CFTC is expected from the Senate Agriculture Committee in the coming months.
The part of the bill addressing securities seems to achieve results similar to those in the House’s Clarity Act. It updates laws regarding securities from the New Deal era, shifting oversight of the crypto market from the SEC to the CFTC, among other bodies.
The language in the Senate’s draft allows both the SEC and CFTC some flexibility for interpretation and rule-making, though the main goal appears clear: to facilitate crypto businesses in raising startup capital without the looming threat of regulatory pushback.
“We aim to lower legal barriers to entry,” a GOP Senate aide commented. “We don’t want every crypto project needing to spend a million dollars just to figure out their legal standing—whether they’re considered a product or a security—because that makes launching difficult.”
Some legal experts find the Senate bill to be more straightforward compared to existing laws and less aggressive in its approach. This has created excitement about its potential benefits for the industry, though there are doubts about whether it will provide sufficient clarity for token developers using the SEC.
The Senate bill is brief—only 35 pages—compared to the hefty Clarity Act at 168 pages. It outlines a pathway for token issuers to raise up to $75 million over four years, pending that the tokens do not offer certain security-like characteristics to holders.
Those characteristics might include rights to dividends or interest, and rights to liquidate a company. If a token doesn’t offer these, it may be classified as a non-security “additional asset,” not subject to SEC jurisdiction. This framework draws from the lummis-gillibrand bill and has not been previously voted on.
Moreover, tokens that initially fall short of the criteria can be reassessed after a year to demonstrate that they were not involved in minimal management efforts and may then qualify for the exemption.
Drew Hinkes, a partner at Winston & Strawn, remarked that the supplementary asset framework indicates the Senate’s intent to find balance between cryptocurrencies and traditional markets.
“The SEC must juggle the risks associated with new token issuance and the need to foster opportunities for minimally infringing tokens,” he explained.
He added that the bill strives to designate assets with securities features when caching out features that don’t qualify.
Interestingly, a crypto policy leader mentioned their favor for the bill due to its straightforward nature. They contrasted it with the House’s clarity act, which nearly exempts most existing crypto assets and complicates rule-making for issuers and token ownership thresholds. They found the Senate approach to be more refined.
If the Senate’s market structure bill is enacted as it stands, it could open up ICO opportunities significantly.
Amanda Fisher, policy director for a nonprofit focused on consumer advocacy, cautioned that, practically speaking, the bill may not yield the definitive clarity many in the crypto community are hoping for.
Fisher, who previously worked with SEC Chair Gary Gensler, expressed that the clarity in the House’s approach appeared as a more overt concession to the crypto industry compared to the Senate’s subtler method.
She voiced appreciation for the clear scope of exemptions being proposed but stressed potential unintended consequences.
Notably, one provision in the Senate bill forbids exempt crypto tokens from granting “explicit or implicit financial benefits” to the selling entities, raising questions about what that entails—like governance rights or how the token’s price may relate to the issuer’s operations.
“If I were in charge of coding, I’d be a bit anxious,” Fisher said. “Many tokens would fit that description.”
The GOP aides sought to lessen concerns regarding the distinctions between this bill and the House’s Clarity Act.
The aides further clarified that once the bill passes and is interpreted by the SEC and CFTC, which type of crypto token would qualify as a security would be clarified over time through regulatory guidance.
Interestingly, Fisher pointed out that the Senate bill might seem less controversial compared to previous legislation regarding securities due to reassurances from Senate Democrats that its impact on traditional markets will be limited.
“It feels like a safety net for Democrats, ensuring that protections are in place to prevent other securities from slipping into exemptions,” she suggested.
Yet, in practice, she noted, it could be challenging for the SEC to pursue token issuers.
“The SEC is likely going to fall behind,” she warned. “Enforcement might become more challenging as we would need to take stronger measures to hold anyone accountable with this bill.”
