Cynthia Lummis: SEC Could Regulate 'Lion's Share' of Crypto

Sen. Cynthia Lummis (R-WY) said in a Tuesday she believed the “lion’s share” of cryptocurrency would be regulated by the Securities and Exchange Commission under the proposal she has co-authored with Sen. Kirsten Gillibrand (D-NY).

She made the comment during a joint interview with Gillibrand on Neil Cavuto’s Fox News program. Cavuto noted that SEC Chairman Gary Gensler has been “a vocal critic” of cryptocurrency. Cavuto asked Lummis to clarify whether the Commodity Futures Trading Commission (CFTC) would be “largely” overseeing cryptocurrency rules under their legislation, leading Lummis to say it would in fact be the SEC.

“I think the way that it’s going to fall out is that the the lion’s share of cryptocurrencies will go to the SEC,” Lummis told Cavuto. “And the big ones … in terms of market cap will probably be at the CFTC. So the CFTC will have control over, for example, bitcoin, and will be looking at spot and futures markets.”

She said their legislation attempted to define the difference between currencies using the Howey Test. Established by the Supreme Court in 1946, the test defines equities as securities when investors expect to derive profit from someone else’s efforts. That definition would easily apply to most projects in DeFi — including, arguably, Ethereum.

“The SEC will still have control over those that are determined by the same tests that we use in the traditional economy to be securities,” Lummis added.

The classification would be significant due to the fact that it would cause tumult in the industry by redefining — perhaps retroactively — many projects as securities. Those who engaged in or promoted early sales of impacted currencies — such as Ethereum — could be penalized, and exchanges would be required to receive approval from federal regulators in order to facilitate future trading. They would also be prohibited from listing non-compliant tokens alongside those that are compliant, which could result in exchanges including Binance and Coinbase delisting the bulk of their offerings.

Elaborating, Gillibrand pointed out, “Chairman Gensler agrees that bitcoin is a commodity. So let’s start from there. For something to be deemed a security … you know, for example, when a company offers stock, it is offering that stock in exchange for money to build a company. If that is the formulation of a digital asset, it’s going to be deemed to be a security. … But if it’s being used in the context of. a commodity like wheat or oil or gold, it’s going to be better regulated by those who understand that, which is the CFTC.”

The duo released the latest version of their sweeping cryptocurrency proposal, the Responsible Financial Innovation Act, earlier this week. Cavuto pointed out that it faced stiff odds of winning congressional passage, prompting Lummis to say it was only an “initial framework.”

“The odds of getting this through seem to be uphill … so is this even going to happen?” Cavuto asked.

“I think everybody around Capitol Hill has been very receptive to this bill, believing that this will be the initial framework that begins the serious discussion of how to create that comprehensive regulatory framework for digital assets,” Lummis said.

She added that she expected it to receive hearings from the Senate Committee on Agriculture — because it oversees commodities — along with the committees on banking, finance, and intelligence. Each of the committees would be required to vote in favor of its passage.

You can watch the full interview above.