Drafting Digital Asset Legislation: A Catch-22 of Clarity and Complexity | June 13, 2023

A bill proposed by Representatives Patrick McHenry and Glenn "GT" Thompson attempts to circumnavigate the complexities of the existing legal framework surrounding cryptocurrency, by creating a new asset category - "digital assets." This class further splits into "digital commodities" and "restricted digital assets", the latter remaining subject to securities laws according to the Howey Test. While the intent of this draft legislation is to provide clarity to the burgeoning crypto industry, it arguably introduces new layers of uncertainty.

One of the bill's key issues is the six-point criterion for "restricted digital assets". Among these criteria is a rule preventing digital assets from involving the sale or offer of equity or debt securities - an attempt to forestall regulatory arbitrage. However, without clear definitions of these terms, the legislation's effectiveness is questionable. Furthermore, other issues, including granting expansive jurisdiction to the #CFTC without additional funding and potential discrepancies in regulations between #DeFi and #CeFi exchanges, render the bill's overall viability doubtful. In an attempt to extricate crypto assets from securities laws, the bill paradoxically offers potential loopholes for traditional securities to bypass these laws. #BTC #ETH #LTC #Crypto #MarketUpdate