House Republicans Unveil New Crypto Regulation Bill to Tackle Market Control

House Republicans introduced a new crypto regulation bill aiming to control large firm dominance and clearly define SEC and CFTC roles. The draft revises the criteria for ‘affiliated person’ and outlines holding periods and trading limits for digital commodities. The legislation prioritises public blockchains and sets disclosure requirements, aiming to foster innovation and consumer protection within the crypto space.

House Republicans, specifically from the Financial Services and Agriculture Committees, have introduced a new crypto regulatory bill aimed at establishing comprehensive oversight for digital assets. This draft builds on last year’s Financial Innovation and Technology for the 21st Century Act (FIT21) that passed the House. It seeks to tackle persistent issues surrounding market dominance while promoting consumer protection and encouraging innovation.

On May 5, a team of Republican leaders—French Hill, G.T. Thompson, Bryan Steil, and Dusty Johnson—unveiled the extensive 212-page discussion draft. A standout feature is the proposed reduction of the ‘affiliated person’ definition threshold from 5% to 1%. This means that anyone acquiring more than 1% of a digital product from its issuer could be considered affiliated, targeting the influence wielded by major crypto firms while inviting small-scale participation in the marketplace.

According to Justin Slaughter, VP of Regulatory Affairs at Paradigm, the new regulatory framework is designed to counter existing monopolistic trends and boost small-scale engagement, calling for a democratization of the crypto ecosystem. The draft imposes specific requirements on affiliated individuals regarding the holding period for digital commodities; they must keep the commodity for a minimum of 12 months before trading until a certain certification on the blockchain system is achieved.

Once certified mature, those holding periods shrink to just three months. Moreover, transaction limits are also adjusted under the new bill: sellers can only trade 1% of total units or the average weekly trading volume within any three-month window via established digital commodity exchanges. These rules aim to deter manipulation and promote fairness in trading practices.

A significant feature of the draft is how it delineates the regulatory roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). This clarity will pave the way for digital asset projects to operate under distinct regulatory frameworks for securities and commodities, as noted in the one-pager accompanying the draft. Market participants will find clear pathways for both raising funds under SEC rules and registering with the CFTC for trading purposes.

The legislation leans towards public and permissionless blockchains while excluding private networks from consideration, reinforcing the commitment to decentralisation. Airdrops, or broad token distributions, are also addressed, with set conditions guiding their legality. Additionally, the draft establishes necessary disclosure requirements, outlining what must be done to register digital commodity exchanges.

Chairman Thompson emphasised that regulatory clarity in digital markets is overdue, calling this draft a crucial initial step in forming a robust framework that enhances consumer protection and fosters innovation. With the subcommittees set to meet for a joint hearing on May 6, this bill could potentially undergo amendments before it faces a vote in the House.

As digital assets move more into the mainstream, this proposed legislation might really help in shaping standards for global regulations, which could, in turn, enhance trust and stability within the industry. So, all eyes are on how this develops going forward.