WASHINGTON — Republicans' crypto market structure bill, which some lawmakers say could reshape finance well beyond the crypto sector, faced stiff opposition from key Democratic lawmakers in a House Financial Services Committee hearing on Wednesday.
House Republicans, led by Rep. French Hill, R-Ark., introduced a revamped version of their market structure bill last week. The bill is designed to establish fundamental regulatory boundaries and authorities, giving the Commodity Futures Trading Commission new powers and splitting registration duties for crypto platforms between the CFTC and the Securities and Exchange Commission.
"Our bill establishes a clear, codified exemption pathway for digital commodity projects to raise capital, supports secondary market trading of these assets, enables SEC-registered entities to participate in digital commodity markets, and much more," Hill said at the hearing.
The bill would also require crypto platforms to be regulated as financial firms under the Bank Secrecy Act and prohibits regulators from forcing custody firms, including banks, from holding their customers' assets on their balance sheets.
Some Democratic lawmakers argued at a hearing that the bill could open up avenues for traditional financial institutions, including banks, to bypass existing securities laws.
"Unsurprisingly, the bill doesn't even deliver the clarity the industry has long sought," committee ranking member Maxine Waters, D-Calif., said at the Wednesday hearing. "Instead, the bill creates vague new definitions that will result in continued litigation, and which the largest players, including big banks, will game at the expense of crypto startups. The only thing clear about this bill is we need to start over."
In a letter to the Securities and Exchange Commission, Waters' office brought up questions about the so-called Howey test — a rubric for determining whether a transaction counts as an investment contract — and
The market structure bill outlines the ways in which an "investment contract asset" — normally something that would fall under the SEC's purview — would not be regulated by the SEC if it meets certain decentralization criteria, including that transaction of the asset is recorded on a cryptographically secured public ledger.
Waters, in the letter, asks if this definition of digital asset could "inadvertently capture traditional securities if they are merely 'recorded on a cryptographically-secured distributed ledger or other similar technology.'" The ranking member also asked how the exclusion of "investment contract assets" from the definition of "investment contract" impacts the application of the Howey test and what the potential risks would be if assets currently considered a security are regulated differently due to the bill's definitions.
Republicans will need some Democratic sign-off on the bill for it to become law, despite holding majorities in the House and Senate and controlling the White House. The bill was introduced with Democratic support — Reps. Angie Craig of Minnesota, Ritchie Torres of New York and Don Davis of North Carolina are all original cosponsors.
That said, the workarounds that traditional finance might gain, as well as conflicts of interest with President Donald Trump and his
Speaking on the sidelines of an event Tuesday at the U.S. Chamber of Commerce, Hill said he has been working with his Senate colleagues on building necessary support to get both the market structure bill and a separate stablecoin bill completed before Congress begins its August recess.
"The House and Senate are working hand-in-glove on both concepts and we've certainly had excellent technical assistance and leadership from [White House Crypto Czar] David Sacks' team," so my goal is still to produce both bills for the president to sign into law. How those go to his desk is something we're still talking with our colleagues about, but that's still my mission, is to get both of those bills completed before the August recess."
