Senators Cynthia Lummis (R, WY) and Kirsten Gillibrand (D, NY) are proposing a tax exemption up to a certain level on cryptocurrency capital gains as part of new upcoming cryptocurrency regulation legislation.
“We found a figure of $600 just at the beginning, but among other things, we’re sharing our bill with a number of our constituents so we can get feedback,” Lummis said in an interview with Yahoo Finance. “Is $600 the right number? Should it be higher given inflation and other factors?”
Unlike traditional classes like stocks and bonds, both senators believe crypto should be allocated a capital gains tax up to a certain amount to allow for ease of use.
“It’s not like owning a stock because you’re not using your stock portfolio to play a computer game online,” Gillibrand said. “Imagine a kid holding cryptocurrency in a game, and if they have $40 worth of cryptocurrency, you have to have a minimum amount for the kid not to file taxes.”
According to Gillibrand, blockchain technology creates a platform for multiple purposes, from organizing communities to investing in art to trading and using NFTs as something valuable that will remain a digital asset.
She says the technology has to be usable for its purpose and that crypto entities aren’t trying to be banks or broker-dealers, but all kinds of financial services functions. Tax exemptions are just one of the many elements of Gillibrand and Lummis’ crypto regulation bill.
A TV screen can be seen at a coffee shop that has dozens of screens showing the latest trends and prices for various cryptocurrencies (Reuters)
The bipartisan duo have created a comprehensive bill that provides a standard set of definitions for how cryptocurrencies should be regulated, whether addressed as commodities or securities, as well as consumer protection, privacy and stablecoins.
Senator Lummis says most cryptocurrencies are commodities, which would place them under the jurisdiction of the Commodity Futures Trading Commission for trading spot and futures markets. She says for crypto products bundled into securities, they have what is known as the Howey test, a jurisdictional test that helps determine what a security is that would fall under the Securities and Exchange Commission.
The story goes on
“We’re trying to create this opportunity to continue to innovate while the playing field is more defined,” said Lummis.
The legislation also seeks to protect users on exchanges from losing money in the event of hacks by turning to the SEC to enforce consumer protections on exchanges. SEC Chairman Gensler encouraged crypto exchanges to register with the commission.
Gensler warned that the SEC could take enforcement action if companies fail to comply, citing the example of how the SEC accused BlockFi of failing to register its retail crypto lending product earlier this year. The commission also recently outlined new accounting standards for cryptocurrencies that would protect crypto assets held by companies for users from hacking losses.
regulate stablecoins
When it comes to stablecoins, senators think the Office of the Comptroller of the Currency would be the best regulator to oversee them. While the OCC is one of the top banking regulators in the country, senators do not want to regulate stablecoins as if they were banks. They also don’t want to limit stablecoins to just being banks.
US Senator Cynthia Lummis (R-WY) gestures while speaking during the Bitcoin 2022 conference (Getty Images)
“They don’t do what banks do, and they’re not supposed to be banks,” says Gillibrand. “We don’t want to create so much cumbersome infrastructure around it, because it’s not necessary, since the uses are very different. So we’re going to look at the stablecoin industry a little more holistically.”
Gillibrand says senators don’t want to constrain the market by creating the same regulatory boundaries for banks on stablecoins, rather they want to provide flexibility that allows for innovation. The Senators’ approach would not require deposit insurance, but would instead require stablecoins to hold fully backed reserves of 100% at all times.
Issuers would also have a direct line to the Federal Reserve, which cryptobanks based in Lummis’ home state of Wyoming have struggled to achieve. The senators’ bipartisan approach contrasts with the president’s working group on financial markets, which recommends only banks be allowed to issue stablecoins.
Republican Senator Pat Toomey is circulating stablecoin oversight bills that would create a new federal license for stablecoins. It would still allow many existing stablecoin issuers to retain state-registered money transmitter status while all are still subject to a set of federal regulatory requirements.
“Delay CBDC”
When it comes to a decision to track a central bank digital currency, Senator Lummis says delay it.
“I would say delay it when it does, just relate it to central banks, both here and internationally, and not directly to consumers,” she said.
The bill kicks off a study of China’s central bank digital currency to understand what the Chinese will use and what impact a digital yuan would have on US markets.
“A lot of it is probably information gathering more than anything else,” says Gillibrand. “So we have to understand it.”
The Senators’ overall goal is to keep crypto in America and compete with the world.
“One of the biggest goals for Cynthia and I is to create a market here in America that can stay in America, that this investment and growth can be part of the US economy, and that these people who are innovating in this place can be want, can do, and have those basic parameters of anti-fraud, consumer protection, security and soundness,” Gillibrand said.
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