Sens. Lummis, Gillibrand detail bill to regulate 'revolutionary' crypto industry

Senator Cynthia Lummis (R-WY) and Senator Kirsten Gillibrand (D-NY) join Yahoo Finance Live to discuss their bill which will seek to further integrate cryptocurrency into the financial system and the outlook for crypto regulation.

Video transcript

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- All eyes in the crypto space are on Capitol Hill today with a new bill co-authored by senators Cynthia Lummis of Wyoming and Kristen Gillibrand of New York, that aims to add regulatory guardrails to the growing industry. They join us now along with our very own Jennifer Schonberger. Welcome everyone into the chat, into the conversation here.

Senators, I want to begin with you. And particularly you both are moving forward in this with a bipartisan fashion. But how many other congressional colleagues have expressed interest in understanding of cryptocurrency and then even furthermore some regulation in cryptocurrency and even blockchain technology going forward? Senator Lummis, I'll direct that to you first.

CYNTHIA LUMMIS: The number grows on both sides of the aisle weekly, between people who are interested and people who a year ago were paying no attention to this subject. And it's because their constituents want them to help create a regulatory framework that will balance innovation with an understood framework for regulation. So Senator Gillibrand and I have chosen the approach of integrating digital assets into the existing financial regulatory structure.

- And so let's talk a little bit more about that. And what additive measures will be taking place within this bill to address where there are some of the regulators who already have jurisdiction. The CFTC even had come about a couple of weeks back, saying that there are some instances where they can already take the action that is even being proposed in the bill right now. And what would your response to that be, Senator Gillibrand?

KRISTEN GILLIBRAND: Well, that's exactly right. The CFTC has been doing the futures market for a while now. And we are clarifying that they will have the spot market as well for cryptocurrencies. We look at the purpose of these digital assets. And if the purpose is like a stock, where you are offering it for money to start a company, like you'd offer stock in a company, that would then be clarified as a security.

And so we follow the Howey test, which is the definition of what a security is. And we make sure that these digital assets can be analyzed in that framework. And so part of the industry goes to the CFTC, part of the industry goes to the FCC. The IRS will have jurisdiction over all of it. And we will be able to create some basic safety and soundness, transparency and accountability, and consumer protections with this framework.

JENNIFER SCHONBERGER: Senator Lummis and Gillibrand, Jennifer Schonberger here. Congratulations on finally dropping this comprehensive bill. It's great to see you both. Following up on that, how did you decide to distinguish? I know you said it's going to be based on the purpose and use of the token. Is that really the north star that you followed for this? And how much support are you garnering across different committees, be it Senate banking, finance, agriculture, as well as regulators on the chosen classifications to cede much authority to the CFTC in terms of classifying many of these de facto as commodities?

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Senator Lummis, I'll direct that to you.

CYNTHIA LUMMIS: OK. We're going-- hi, Jennifer. We're going to see the number of cryptocurrencies that are regulated by the SEC be very large. But in terms of market cap, probably more of these cryptocurrencies will be regulated by the Commodity Futures Trading Commission, simply because Bitcoin and Ethereum make up about 65% of the market cap of digital assets.

Nevertheless, there are thousands of cryptocurrencies. Many of which are going to be requiring disclosures through the Securities and Exchange Commission and they're very good at disclosures. So we hope that we have split based on a very updated Howey test codification the clear difference between what is a commodity and what is a security.

JENNIFER SCHONBERGER: Senator Gillibrand, to you, on the back of the run that we saw in stablecoin Terra and sister token Luna, there have been renewed calls for regulating stablecoins. How does your legislation intend to prevent runs on stablecoins, protect investors? Would it distinguish between algorithmic stablecoins versus Fiat backed ones? And would algorithmic stablecoins be permitted under your legislation?

KRISTEN GILLIBRAND: No. Under our legislation we define a stablecoin as something that is backed one to one by a Fiat currency. And so you would not have runs under that scenario. And that's the purpose of stablecoins, it's meant to be stable. So if you want to have a different kind of digital asset that has an algorithmic background, then you'd have to assess whether it would be a security or a commodity under the framework of what your purpose of that asset is. And just for your viewers so you understand the breadth and depth of this industry, we have entrepreneurs who are issuing tokens in Oakland, California as a democratization effort as a way to organize a community, as a way to make sure they have access to social services and access to voting.

So just because it's a digital asset, it doesn't mean it's being used for traditional monetary purposes or for financial services or for the many uses that we use both commodities and securities for in the economy. Sometimes their purpose is entirely different. And so we've created this framework to be flexible, to allow for innovation, to allow for multiple uses or different uses. And if you over-regulate this industry, the players you are going to exclude are those entrepreneurs and innovators who are using digital assets for all sorts of purposes.

If you're a traditional player who wants to be a broker dealer and wants to offer financial services to institutions, you're going to be regulated by the SEC because that's the purpose of the SEC. But if you are doing something entirely different for very different reasons, you don't want to be over-regulated because then you will stymie innovation and destroy so many applications for blockchain. Blockchain is a revolutionary framework and system that can be used for multiple uses. It's not just a one size fits all.

- OK. So just to follow up on that, Senator Gillibrand, because we've largely been talking about regulation for specific crypto asset types or blockchain based asset types. But when we think more broadly around the blockchain and how the network can be its own internet, its own system and protocol, do you believe that we are marching towards a broader blockchain type of regulation or at least set of protections for consumers who are engaging?

KRISTEN GILLIBRAND: Yes. And so that's why Cynthia and I worked very hard to look at all the current uses of blockchain technology and digital assets and tokens to make sure that there's a place for everything. That it's appropriate for what the purpose is and what for what the goal of using that technology is. And this is a very useful framework to start.

Now, an answer to one of your earlier questions, this is just the beginning. This bill will likely go through four committees of jurisdiction in the Senate. It'll go through banking for the SEC portions, agriculture for the CFTC portions, finance for the IRS portions, and most likely Intel because of the internet components. Most cybersecurity work is done through Intel.

And so these committees will then use their judgment and put their imprimatur on this legislation over time. And that will make it an even better bill. And so Cynthia and I just are-- this is step one of a comprehensive, thoughtful view of how to begin to regulate this industry with enormous amounts of input from regulators, stakeholders, industry participants, entrepreneurs, so that we have in mind there design and their business plans and their goals in trying to find a regulatory framework that meets the needs of the moment. And given the market challenges of the last several weeks, you need these rules of the road to create stability.

JENNIFER SCHONBERGER: Senator Lummis, following up on what Senator Gillibrand just mentioned, this is just the starting point. What kind of support are you garnering in the Senate from other colleagues on other committees? Do you see this legislation going through in a comprehensive form or would you be breaking this up into more piecemeal?

As mentioned previously, stablecoins are very much top of mind. Maybe taking that piece out and shepherding that through committee. And how quickly do you foresee getting this legislation, through getting rules of the road through for the industry to get to the next level and to protect investors?

CYNTHIA LUMMIS: Well, Senator Gillibrand and I will be meeting with the Senate parliamentarian to discuss which committees will have jurisdiction, how the bill can be broken up to send components of it to the committees that have jurisdiction. The only committee that can assert jurisdiction over the entire bill is the Finance Committee. But because so many of these issues involve the expertise of the AG committee, the banking committee, and others, we think it will probably be preferable to divide it among the four committees that Senator Gillibrand mentioned.

That said, Senator Gillibrand and I have been working with members of those committees to acquaint them with the framework of our work product. And so if the bill is divided up, we've already had either dinners or lunches or meetings or briefings with members of those committees to acquaint them with our approach. Some of them have seen the bill. Some of them have received sort of executive summary, the cliff notes [AUDIO OUT]

- I believe we--

CYNTHIA LUMMIS: Bills. And we'll have the opportunity to weigh in. I think that this is a bill where you'll actually see committees function as they were designed rather than having a piece of legislation go from the speaker's office to the majority leader's office without the input of committees. This will involve rank and file members weighing in on a subject in their committees and passing them through committees the way that the Congress was designed to function on a bipartisan, bicameral basis.

- I tend to keep track of here, we're going to have to end the conversation there for today. But we'd love to have you back and continue it. Senator Cynthia Lummis, who is the Senator from Wyoming, and additionally Senator Kristen Gillibrand, and Yahoo Finance's own Jennifer Schonberger. Thank you all so much for joining us here today.