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March 9, 2020

Congressman Paul Gosar introduced the "Cryptocurrency Act of 2020" to determine which US regulator is responsible for which digital assets (DAs).

The proposal divides DAs into 3 main categories:



1) Crypto-Commodities are defined as goods or services, including derivatives, that:

a)have full or substantial fungibility.
b)the markets treat with no regard as to who produced the goods/ services; and
c)rest on a blockchain or decentralized cryptographic ledger.

2) Crypto-Currencies are defined as representations of USD or any synthetic derivatives therein, either based in algorithms, smart contracts or collateral to stabilize against USD.

3) Crypto-Securities are defined as "all debt and equity that rest on a blockchain or a DLT", excluding synthetic [USD] derivatives that

a) are operated as, and registered as an MSB, and
b) are operated in compliance with applicable requirements of the Bank Secrecy Act.

Importantly, the proposed bill clarifies which should be the primary Federal DA regulator for each DA:

1) CFTC: Crypto-Commodities
2) Secretary of Treasury (FinCEN): Crytpo-Currencies
3) SEC: Crypto-Securities

As opposed to the burdensome process of applying for a license (e.g. NY's Bitlicense), the bill proposes mere registration obligations for those exchanges who offer either crypto commodities, currencies or securities.

Interestingly, the bill introduces a whole new crypto taxonomy to the space, which until now, seems to be the most clear and straight-forward ever proposed to the Congress.

The good news are [should this bill be approved], IMO:

1) DAs such as XRP will be classified as Crypto-Commodities subject to CFTC supervision. This, since buying XRP clearly does not imply participation in any company's debt or equity nor is XRP a synthetic US derivative.

2) As opposed to the obtention of burdensome MSB licenses, the bill would allow USD stablecoins, etc., to operate only with a registration before the Secretary of Treasury.

This could potentially simplify the regulatory framework for interoperability layers (ILP connectors)

The bad news are:
1) The bill does not propose changes to the Securities Act, which means that both regulations would end-up confronting in courts (potentially).
2) Same could happen with respect to MSB regulations.
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