Aspect Advisors attended the June 8th Evolution of Money: Cryptocurrency Regulation event at the Washington Post in DC. The event occurred one day after the new bi-partisan crypto legislation bill was introduced by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY).


The event started with remarks from the Chair of the Commodity Futures Trading Commission (CFTC), Rostin Behnan. Chair Behnan made it clear that he believes many cryptocurrencies are commodities rather than securities and therefore should be under CFTC jurisdiction. Chair Behnan was in support of the introduced crypto legislation because it would largely give CFTC jurisdiction over the crypto exchanges and intermediaries. The CFTC would be funded partly by a user fee paid by the crypto registered entities. It is Chair Behnan’s belief that consumer protection will increase significantly when the CFTC and other regulators have jurisdiction over the crypto markets. Chair Behnan discussed the need for risk disclosures as well as disclosure regarding environmental impact. Specifically, the Federal Energy Regulatory Commission (FERC) would be in charge of a disclosure framework for environmental impact.


Next, Senators Lummis and Gillibrand provided their thoughts on the introduced legislation. Lummis mentioned that the past few months of volatility and the LUNA/Terra stablecoin collapse shows that we are beyond ready for meaningful regulation in this space. Regarding stablecoins, Lummis stated that the legislation spells out a requirement that the stablecoin be backed by high quality liquid assets or be issued by a financial institution that is insured by the FDIC or NCUA. Senator Gillibrand stated they researched extensively the case law around the Howey Test to determine whether a cryptocurrency is a security. In the legislation, some refinements were made to the Howey test. Gillibrand shared that crypto is a democratization of finance and increases access to minorities and lowers remittance fees. Lummis and Gillibrand also discussed that energy consumption is an issue to watch; however, also noted that many firms are moving to carbon neutral crypto mining. Lummis and Gillibrand stated their legislation will need support from at least four committees in the Senate: the agricultural committee on commodities, banking committee on securities, finance committee regarding the taxation of cryptocurrency and the Intelligence committee regarding national security.


CEO of Grayscale, Michael Sonnenshein spoke on why he sees value in thoughtful regulation and the reason he thinks it is in the consumers best interest to have spot cryptocurrency ETFs available to them. Michael also believes the time is now for the SEC to allow them to convert their GBTC spot bitcoin trust to an ETF.


Lastly, there was a discussion from two industry policy experts. Dante Disparte at Circle, the issuer of the dollar backed stablecoin USDC shared that there actually is currently a decent state level regulatory framework for stablecoins. He further stated that there has been a flight to quality in the stablecoin markets after the LUNA/terra collapse and this has benefited Circle and USDC. Tomicah Tillemann at Haun Ventures shared that it was his view that the US needed to consolidate some of its regulatory agencies and really rethink how we approach crypto regulation. He shared some concern with trying to regulate it from multiple regulatory agencies.


Aspect Advisors believes this is a good first step at bipartisan legislation on the regulation of cryptocurrency. This is the beginning of the process for the legislation. Given the wide variety of stakeholders and number of Congressional Committees involved, it is expected to take some time for the legislative discussions and process to move forward. The industry will benefit from regulatory clarity, and we look forward to thoughtful regulation that does not materially hinder innovation.