Seven bills that could determine the future of cryptocurrency in the U.S.

Cryptocurrency leaders have often called for regulatory clarity to reduce uncertainty in the industry.

However, some of the cryptocurrency bills making their way through the U.S. legislature (see chart below) may offer more than they bargained for, potentially shaking the foundations of decentralized finance to the core by imposing stricter regulations.

Some of these efforts reflect the crypto community’s desire for tailored regulations that allow them to operate with clarity.

Others reveal lawmakers’ concerns about money laundering, consumer protection and decentralization.

So let’s break down the seven bills brewing on Capitol Hill.

Title 1: 21st Century Financial Innovation and Technology Act

Those concerns seemed to have faded in late July, as the industry celebrated the passage of two encryption bills by two congressional committees, bringing them one step closer to becoming law.

One of those is the 21st Century Financial Innovation and Technology Act, whose passage Coinbase CEO Brian Armstrong called “a vote to protect your cryptocurrency, American innovation, and national security.”

The bill would provide new trading rules for cryptocurrency exchanges and make the Commodity Futures Trading Commission the lead cryptocurrency regulator in the United States.

However, the bill has been criticized by Democrats and consumer advocacy groups, in part for not ensuring the CFTC receives additional funding to carry out its responsibilities.

During debate before the bill passed the House Financial Services Committee, Representative Stephen Lynch, a Democrat from Massachusetts, called it "the worst legislation filed in the last 20 years."

Item 2: Stablecoin Payment Clarity Act

The Stablecoin Payments Clarity Act would establish a legislative framework for issuing payment stablecoins.

Under the bill, stablecoin issuers must be companies regulated like banks and must maintain reserves of safe assets backing the stablecoins in a one-to-one ratio.

The bill was voted through the House Financial Services Committee and moved into the broader House floor, but that progress came only after intense debate in late July.

Republican House Financial Services Committee Chairman Patrick McHenry and the panel's top Democrat, Maxine Waters, have been negotiating the bill for a year and a half. But Waters and other Democrats have raised major objections to the bill.

During the debate, Waters said McHenry rushed the ballot version through even though her team and the administration disagreed with it in its current form.

Democrats objected to the bill’s provision that would allow stablecoin issuers to obtain licenses from state and federal regulators.

Waters said states could undermine the bill’s overall goal by lowering reserve requirements to attract issuers.

Item 3: Lummis-Gillibrand for Financial Innovation Act

The Lummis-Gillibrand Financial Innovation Act was a bipartisan effort that spanned two Senate committees.

It was a collaboration between Republican Senator Cynthia Lummis, who sits on the Banking Committee, and Democratic Senator Kirsten Gillibrand, who sits on the Agriculture Committee.

The two senators introduced the bill during the last Congress, but reconsidered it after the FTX exchange debacle.

In mid-July of this year, they launched a new version that added protections for cryptocurrency consumers.

The nearly 300-page bill covers every aspect of the cryptocurrency industry, from stablecoins to ATM operators, from exchanges to coin mixers, and it provides legal definitions of key terms, including “crypto assets” and “decentralized exchanges.”

But the bill’s most significant provision is that cryptocurrency exchanges will have to compulsorily register with a regulator, most likely the Commodity Futures Trading Commission.

However, the SEC was given more power to enforce consumer protections.

Miller Whitehouse-Levine, CEO of the Decentralized Finance Education Fund, told DL News that the Lums-Gillibrand bill is encouraging, but there are also some worrisome elements.

Among other things, he said, the bill casts some doubt on self-hosted wallets.

Centralized cryptocurrency exchanges and wallet providers are required to identify their customers under anti-money laundering and know-your-customer regulations.

But self-hosted wallets are still controlled by the user, providing anonymity.

The Lummis-Gillibrand Act does not outright ban these wallets, but exchanges will need to follow new standards related to “anti-money laundering, customer identification, and sanctions” when interacting with customers who hold these wallets.

For many DeFi users, this kind of censorship eliminates the entire point of self-custody.

“In our view, self-custody is a fundamental innovation for digital assets — without it, there would be no such thing as cryptocurrencies or DeFi,” Whitehouse-Levin said.

“We want to ensure that the ability to self-custody assets is always protected and that it is protected in any legislation that is passed, ideally, that is welcomed.”

Item 4: Crypto-Asset National Security Enhancement and Law Enforcement Act

Another bipartisan bill in the Senate, the Crypto-Asset National Security Enhancement and Enforcement Act (CANSEE), was introduced in mid-July.

Led by co-sponsor Senator Jack Reed, the bill targets DeFi and cryptocurrency ATMs. The bill's authors say these technologies enable illicit financing and money laundering by bad actors like the North Korean government.

The bill essentially requires DeFi services to adhere to the same AML and sanctions compliance obligations as banks and centralized exchanges.

DeFi services must have an AML plan in place to identify their users and report suspicious transactions.

It gives the Treasury new powers to decide who is responsible for violations, including developers and funders of projects.

Cryptocurrency advocates slammed the bill, saying it would make the development of DeFi impossible.

Lars Seier Christensen, founder and CEO of blockchain company Concordium, told DL News that the bill would create major problems if passed.

“I don’t quite understand the way it was presented,” he said.

The broad powers granted to the Treasury would undermine a fundamental principle of DeFi technology — decentralization, Christensen added.

“The passage of the bill could ultimately lead to the Secretary of the Treasury taking strict control over many projects, thus making the DeFi industry completely controlled by government agencies and becoming more centralized than the traditional financial industry itself.”

Item 5: Cryptocurrency ATMs and the Defense Budget

The U.S. Senate recently passed a record defense budget bill with strong bipartisan support.

The bill includes anti-money laundering legislation focused on cryptocurrency.

The bill sets new regulations requiring cryptocurrency ATMs to collect identifying information on users.

The bill combines provisions from the Lummis-Gillibrand bill with those from the Digital Asset Anti-Money Laundering Act of Democratic Senator Elizabeth Warren and Republican Senator Roger Marshall.

The defense bill is likely to face significant resistance in the House of Representatives.

Items 6 and 7: Blockchain Regulation and Keep Your Coins Act

Two short bills introduced in the House were bundled with other bills and voted out of committee in late July, so they will now go to the full House for consideration.

One of them is the Blockchain Regulatory Certainty Act, sponsored by House Majority Chief Assistant Tom Emmer.

The bill confirms that blockchain developers who do not hold customer assets will not be classified as money transmitters under state law or as financial institutions under federal law, and therefore do not need to register for a license.

Another is the Keep Your Coins Act, sponsored by Rep. Warren Davidson (R-Va.).

Davidson said the bill is designed to protect the privacy of Americans when transacting with crypto assets.

Specifically, it protects the rights of crypto users to keep digital assets in self-custodial wallets.