When Sen. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced their bipartisan Responsible Financial Innovation Act at the start of June, it was widely seen as as policy that would undercut the U.S. Securities and Exchange Commission’s jurisdiction over crypto.
But Lummis doesn’t think the SEC stands to lose much oversight in her proposed crypto regulatory framework.
“I really don’t think that the SEC is going to lose regulatory control, I think they’ll retain it when [the digital assets] are investment contracts,” she told Decrypt on the latest episode of the gm podcast. “I think you’ll have situations, under our definitions of ancillary assets, where you’ll have a digital asset, say Bitcoin, that is the underlying asset that is regulated by the CFTC, but the investment contract in which it is contained is itself regulated by the SEC.”
The bill’s investment contract definition, itself pulled from the Securities Act of 1933, would leave the CFTC to regulate Bitcoin and Ethereum. The SEC would oversee the vehicles for investing in those assets, like any exchange-traded funds (ETFs).
Citing the ’33 act in the bill is a significant detail. It’s widely believed to be the most viable path forward for a Bitcoin spot ETF.
The SEC has already approved several Bitcoin futures ETFs under the Investment Company Act of 1940, saying it offers certain investor protections not covered by the 1933 act. But when the commission approved the Teucrium Bitcoin Futures Fund under the ’33 act in April, it renewed hope for a spot ETF.
Grayscale CEO Michael Sonnenshein moved fast, writing a long Twitter thread to make his case for turning the firm’s Grayscale Bitcoin Trust (GBTC) into a Bitcoin spot ETF. And when it looked like the SEC might deny the application, Grayscale turned to the crypto community to drum up support and had its legal team try to sway the commission.
It still didn’t work. When the SEC rejected the application last week, Grayscale sued.
There’s no guarantee, of course, the GBTC conversion would sail through under Lummis’s regulatory framework. But it would set precedent for creating crypto ETFs under the ’33 act. That would provide some clarity to the current crypto regulatory climate, which Lummis likened to stumbling around in the dark and stubbing your toe.
“If you’re walking around in the dark, in terms of regulation, and your first bump into a regulatory agency is to be slapped with an enforcement action, it’s like stubbing your toe really badly in the middle of the night—or maybe breaking your toe in the middle of the night,” she told Decrypt. “It leaves a bitter taste in people’s mouths.”
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