House Passes Digital Asset Market Clarity Act, Boosting CFTC Authority

The House of Representatives has introduced the Digital Asset Market Clarity Act, which aims to adopt a structured legislative approach towards the crypto market. This development has been eagerly anticipated by the crypto community, particularly since the appointment of the pro-crypto Donald Trump as US President. As the crypto market moves towards more legislative-focused growth, the question arises: will this have a positive impact on altcoins?

The CLARITY Act grants more authority to the Commodity Futures Trading Commission (CFTC), including ‘exclusive’ jurisdiction over ‘digital commodity cash or spot markets.’ Digital commodities are digital assets that behave more like commodities such as oil or gas, rather than typical securities. Bitcoin and Ethereum are prime examples of digital commodities. The act applies to spot and cash markets, where participants exchange these digital commodities for cash, and does not include speculative and derivative products like futures and options.

The CLARITY Act proposes several significant changes and provisions. One key requirement is that crypto platforms must choose to register with either the CFTC or the Securities and Exchange Commission (SEC), depending on the types of digital assets they offer: digital commodities, securities, or both. Platforms registered with the CFTC as digital commodity exchanges, brokers, or dealers must also comply with the Bank Secrecy Act. This includes adhering to Know Your Customer (KYC) requirements, monitoring suspicious activities, and filing regular Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs), thereby increasing record-keeping requirements for legal compliance.

Regarding crypto custodians, the Staff Accounting Bulletin 121 (SAB121) passed by the SEC in 2022 required custodians to record crypto assets and liabilities belonging to their clients on their own balance sheets. However, the CLARITY Act proposes a more logical approach, stating that regulators like the SEC cannot ask digital asset custodians to record digital assets held by their clients on their own balance sheets, as the assets belong to the clients, not the custodians.

The Act also clarifies the regulatory status of stablecoins, stating that they are not securities and thus not under the jurisdiction of the SEC. Instead, stablecoins will be regulated by the agency that oversees the firm involved in their issuance. For example, if a stablecoin is issued by a bank, it will be regulated by bank regulators such as the FED or OCC. The Stablecoin Bill, due for discussion next week, aims to establish clearer rules for managing and issuing stablecoins, protecting consumers, and preventing financial instability. Some experts suggest that merging the Stablecoin Bill with the CLARITY Act could provide a more unified approach to regulating the crypto market.

Overall, the CLARITY Act represents a significant step towards a more regulated and structured crypto market, with clear distinctions between spot and cash markets, as well as stablecoin treatment. As the crypto market becomes more organized, investor confidence in digital assets is expected to increase, potentially leading to a surge in investments. This could position retail investors to capitalize on the next big crypto opportunities.