The Senate Banking Committee met on Thursday to discuss the Clarity Act- which is a bill designed to regulate cryptocurrency and better protect investors from fraud and blurred regulatory lines. It seems crazy to think that individuals and companies have been investing billions of dollars in cryptocurrency since 2009 with very little oversight or protections, and yet it happened. There’s been little oversight because federal officials couldn’t agree on what cryptocurrency was. Are digital assets securities, commodities, or currencies? You can’t regulate something if you don’t know what it is. 

The Clarity Act, if passed, will define digital assets as digital commodities under CFTCregulation, or Commodity Futures Trading Commission. Assets that function as investments will remain under the regulation of the SEC,  U.S. Securities and Exchange Commission. Digital asset firms are happy with the proposed bills, but banks aren’t entirely onboard. They’re asking for a compromise regarding Stablecoin. 

In layman’s terms, Stablecoin is a digital token that gets its value from the asset it is tied to – like the U.S. dollar. Account holders can use their Stablecoins to trade crypto, pay for goods and services, and send money virtually. Banks have an issue with Stablecoins because they function like bank accounts. They don’t want their customers enticed by the promises of high yield on returns to take their money from the bank and invest in digital tokens. If the banks don’t have enough money coming in, they won’t be able to loan money out. 

At this point the compromise regarding Stablecoin in the Clarity Act is being debated. If passed as is, the bill would require the CFTC to set clear rules for rewards and incentives within one year and crypto firms would be prohibited from paying interest or yield similar to a traditional bank deposit. Yet those in the banking industry feel the language is ambiguous and would open the door to other rewards and “violate the spirit of the compromise”. On May 14th the committee approved the bill but it has a long way to go before it is passed.