Bipartisan lawmakers seek cryptocurrency rules to protect consumers and keep US competitive

Key Points
  • Members of the House are introducing two bills that could bring more oversight and less opacity to the cryptocurrency industry.
  • One bill directs the Commodity Futures Trading Commission to describe how price manipulation could happen in virtual markets, then recommend regulatory changes. Another seeks to keep the U.S. competitive in the global industry.
Members of the 113th US House of Representatives recite the Pledge of Allegience.
Saul Loeb | AFP | Getty Images

Congress is getting more serious about cryptocurrency.

Members of the House plan to introduce two bills on Thursday to prevent fraud, protect consumers and make sure the country doesn't fall behind as a leader in the global digital asset class.

The bipartisan bills don't give specific recipes for how to achieve those goals. Instead, they ask the Commodity Futures Trading Commission to come up with recommendations.

"Virtual currencies and the underlying blockchain technology has a profound potential to be a driver of economic growth," Reps. Darren Soto, D-Fla., and Ted Budd, R-N.C., said in a statement. "That's why we must ensure that the United States is at the forefront of protecting consumers and the financial well-being of virtual currency investors, while also promoting an environment of innovation to maximize the potential of these technological advances."

Any cryptocurrency legislation marks a certain maturity in these markets.

While bitcoin itself has been around for a decade, the cryptocurrency fundraising method known as initial coin offerings began attracting billions of dollars from retail investors at the end of last year. Regulators and lawmakers were caught unprepared as many ICOs turned out to be frauds, backed merely by abstract ideas or in some cases nothing at all.

Bitcoin's price soared to almost $20,000 amid the mad dash to own digital currency last year, but since then has lost more than 75 percent of its value. It dropped 37 percent in November alone.

The road to new crypto laws

For now, the regulatory environment in crypto is fragmented: The CFTC oversees the largest two, bitcoin and ether, and the Securities and Exchange Commission oversees all other cryptocurrencies.

The SEC has cracked down with settlements on everything from fraud to failing to register initial coin offerings as securities. The agency's chairman, Jay Clayton, has repeatedly said that most cryptocurrencies are securities, and therefore need to register under those laws.

More clarity and global competition were major themes in an October roundtable attended by more than than 50 industry participants and Budd and Soto. Attendees warned that if companies don't get a better idea of the industry's legal footing, the U.S. could fall behind on innovation and trail in the potentially profitable blockchain realm.

The second bill, the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2018, centers on making sure the U.S. stays competitive in the industry. The bill directs the CFTC to do a comparative study of crypto regulation abroad, then make recommendations for U.S. regulatory changes. It also calls for alternatives to "current burdensome regulations that may inhibit innovation."

Lawmakers are asking the CFTC to clarify which virtual currencies it sees as commodities. It also asks the agency to examine costs and benefits of a new regulatory structure that could replace the current money transmission system, which some in the industry have argued is inefficient.

Many of the consumer protection concerns stemmed from a New York attorney general's report on virtual exchanges' risk of manipulation, the lawmakers said. The AG's months-long investigation published in September found that cryptocurrency exchanges are vulnerable to market manipulation and lack standard consumer protections that come with established financial markets.

The first bill, also sponsored by Rep. Bonnie Watson Coleman, D-N.J., focuses on the AG's findings. The "Virtual Currency Consumer Protection Act" would ask the CFTC to create a report examining potential for price manipulation in cryptocurrency and its effect on the economy.

Others in Congress have also acknowledged a need for more rules regarding the digital asset class.

Rep. Warren Davidson, R-Ohio, is drafting a crypto-related bill to be introduced before the end of this year that he said in October was not "fully cooked" yet. In September, Rep. Tom Emmer, R-Minn., said he also planned to introduced three crypto and blockchain-friendly bills.