Well, new crypto laws are coming.
I'm currently looking at a 69 page document
that outlines regulations for just about everything having
to do with crypto, from stablecoins, illegal
securities, taxes, even crypto retirement accounts.
You're probably gonna like some parts of this,
other parts, not so much.
I went ahead and read this
document so you don't have to.
And that way we can discuss the highlights,
as well as my personal thoughts on what
in the world is going on here. And you know what?
Let's start with one that you'll probably like - taxes.
It's not that bad.
If this bill were to pass, there would be
a $200 exemption of capital gains tax on crypto.
This is to help encourage people to actually use crypto
as currency to purchase things, which is kind of cool,
but it also means $200 in general gains, no tax.
It's important to note that this bill was spearheaded
by Cynthia Lummis, who's a big fan of crypto.
She is a Senator in Wyoming, which is one
of the most crypto friendly states in the country.
So if you're into crypto, she is a
good person to help write these laws.
However, that doesn't mean that you're going to
love everything in this bill, especially if you're
someone who just doesn't like rules.
I'm one of those people most of the time.
But moving on, the biggest sweeping
piece within this proposed bill is
which agencies will actually oversee crypto.
That's actually been a big debate, like
which governmental department should look at crypto.
Most of the world figured that this would just
be the job of the SEC, but this bill
outlines that it would actually be split with another
agency, the CFTC, the Commodities Futures Trading Commission.
This matters because the bill breaks
DAOn normal cryptos into two major
categories, ancillary assets and securities.
Essentially, all digital assets will be designated
as ancillary assets, unless proven otherwise.
Then it's a security.
So what is an ancillary asset?
Well, ancillary essentially means to
aid or supplement something.
So in this instance, I think it's easiest to think
of a crypto coin as an aid to its blockchain.
A coin helps the blockchain, but isn't the blockchain.
A coin is supplemental to the blockchain.
The proposed bill then defines ancillary assets as
intangible, meaning you can't touch it; fungible, meaning
it can be replaced by an identical coin,
like we could swap Bitcoin right now, and
neither of us would lose anything.
And these assets are offered, sold, or
provided in connection with the purchase and
sale of a security through an arrangement
or scheme that constitutes an investment.
I read this as the crypto coin is
representative of your investment within that blockchain.
So most crypto coins and tokens
will fall under that category.
And anything that does will be regulated by
the CFTC because they'll actually be treated like
a commodity, like soybeans, weed or gold.
But there are exclusions.
The crypto is not an ancillary asset when
they directly represent equity or ownership in some
entity, nor is it an ancillary asset.
If holding the crypto means you personally get paid
profits, dividends, or some kind of revenue share, what
they'll continue to use is what's called the Howey test
to determine if a crypto is a security.
Now, I personally think that this test is a bit outdated
for crypto, but I guess I don't make the laws.
I just spend all morning reading them.
Now, this creates all sorts of weird gray areas.
Something popularly done with exchange tokens is they don't
pay holders outright dividends, but they do buy back
token supply with profits from an exchange.
So here's an example.
At launch, the BNB tokenomics for the Binance exchange
said we will buy back 50% of the total
supply of this token with exchange profits.
Theoretically, that isn't a dividend.
However, holders are directly benefiting from
profits of the exchange, something typically
reserved only for shareholders.
How does this get handled?
We really don't know.
In fact, it appears that BNB is in a bit
of hot water right now as well with the SEC.
They're looking to see if the BNB ICO
back in 2017 was actually a securities offering,
essentially giving holders ownership of the exchange through
a coin, which is a no no.
There's not a whole lot of information on this
case, but it will certainly pave the way for
crypto regulation in the future, as just about every
single exchange token has done something similar.
And it gets even weirder.
If you look at DeFi tokens,
many of these tokens will automatically
burn supply without any human intervention.
What happens there?
Again, we really don't know.
So the question is, if a coin is found, in fact
to be a security, not an ancillary asset, what happens next?
Will it collapse, just disappear?
The answer is no, at least probably not.
The coin would simply be registered as a security
as long as they can meet the SEC criteria.
But then it would be like any stock in the stock market,
and there would be a closer eye on that coin
and the business practices around it by the SEC.
Now, this would very likely cause some
kind of market panic in the short run,
like the first time that happens.
But ultimately it would be all right in the long run,
and we'd just be left with better tokens that have a
bit more oversight if in fact they are securities.
Now, there is a silver lining to all this.
If these definitions all get enacted, we'd be much
more likely to see a spot Bitcoin ETF, because
we would then have a regulatory body in place
to monitor these kinds of funds.
And a spot ETF is great for crypto because it
would give crypto access to far more money and far
more investors, which is just good for the entire space.
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Now, moving on.
A big debate in crypto has been who
is considered a broker and who isn't.
I mean, intuitively, you would think, well, someone in
a business where you buy and sell cryptos would
probably be a broker and no one else.
And you're not alone.
Literally everyone thinks that except the law.
There were some stipulations in the infrastructure bill
that said, those who validate distributed ledger transactions,
meaning minors and stakepool operators, those who sell
hardware or software used to store crypto, and
those who develop digital assets are all brokers
and would be subject to far more regulations.
It just didn't make sense.
This new proposal clarifies who a broker is
and more importantly, who isn't.
Any person who in the ordinary course
of business, facilitates sales of digital assets
for their customers is a broker.
Then the Doc does this all one better than that.
It says that crypto miners and stakehold operators shouldn't
have to pay tax on the currencies that they
receive through normal business operations until that currency that
cryptocurrency is converted into Fiat currency.
Now, a couple more quick things on taxes.
First, the DAO.
This bill outlines that DAOs should be
considered legal entities for tax purposes.
However, the DAO must be registered as an
entity within its jurisdiction for that to apply.
And finally, the bill would require the IRS
to actually give us some guidance on how
taxes work for things like air drops, staking
rewards, stablecoin payments, and charitable contributions all
things that are absolutely needed because taxes are
just a mess when it comes to crypto.
Speaking of stablecoins, this bill would
help make them a whole lot safer. Starting off,
any stablecoin must have, "high quality liquid assets
equal to not less than 100% of the total
face value of all stablecoins on the market."
Basically, an issuer would need to have either
cash short-term, US securities, or some other extremely
low risk liquid backing to any stablecoin.
This is absolutely needed.
And anyone who issues a stablecoin must provide a
monthly audit report showing that they actually have enough cash
in the bank, as well as give users the ability
to convert from stablecoins to cash at any time.
Basically all the things a stablecoin should do,
and most big ones do already, but it's
definitely a step in the right direction.
Now, there isn't anything in
this proposal about algorithmic stablecoins.
However, based on the cash or cash equivalent requirements
that we just outlined, I don't see how a
coin like UST would pass these necessary criteria.
That's another thing that we'll just have to wait
and see how this all gets fleshed out.
Finally, crypto retirement accounts.
This bill outlines that if passed,
the government accountability office must analyze
the risks associated with these services.
Personally, I don't see a big issue here.
And these accounts are a crypto trader's dream
because you can day trade within one of
these accounts and pay no capital gains tax.
That's pretty awesome.
A sponsor of mine is actually iTrustCapital.
I'll have them linked in the description if you want
to see if that makes sense for your personal situation.
So what do you think about all this?
I personally think that it's a
step in the right direction.
We're going to see regulations
in crypto no matter what.
And to be honest, I wouldn't be mad
if this is what helped spearhead the cause.
This bill seems to be well thought out
and considerate of consumer protections as well as
the necessary freedoms that we want within crypto.
Sure, I would love if crypto could
just be the wild west forever.
But also at the same time, I'm sick of
scams and people getting hurt in the space.
For crypto to truly become
mainstream, it just needs regulations.
This is the case for every single financial industry.
If you look back into history, you can find dozens
of examples of some new finance product coming out.
It's the wild west for a while.
People have way too much fun with it.
They get too greedy, something blows up, people
get hurt, and then finally regulations come in
and smooth out some of that volatility.
Honestly, we just can't have anything nice.
We've proven this time and time again.
We're our own worst enemies when it comes to finance.
Now the question is, will this get passed?
Without some form of alterations,
almost certainly, no.
I wouldn't be surprised if parts of this bill were
passed individually, but it will likely be difficult to pass
the whole thing through Congress all at once.
There are definitely roadblocks in the way.
Congress doesn't get along well first off, and there's
also a whole lot of education needed within Congress
for most politicians to really understand this.
But overall, I think that this is
likely a step in the right direction.
Now, if you're sitting there and wondering what crypto
might look like a few years from now,
I got you covered with this video on screen.
It's a must watch.
I'd like to thank you so much for watching.
I'm Max Maher and I hope you have a profitable day!