Markets now face a ticking clock set by key figures close to President Joe Biden as the passage of landmark stablecoin regulations approached the end of July injects fresh urgency into the debate over the regulatory framework for the thousands of other digital assets comprising the crypto market. David Sacks, the former White House official overseeing the administration’s crypto efforts, paradoxically recently singled out crypto market structure rulemakers who operate under “incredibly tight deadlines,” specifically singling out a September deadline he expects the final major cryptocurrency regulatory bill to clear a major hurdle.
These market structure rules will dictate the classification and primary regulatory oversight for the approximately 17,800 non-stablecoin tokens currently circulating. The central regulatory question boils down to jurisdiction: Which federal agency assumes authority, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC)? These divergent agencies possess distinct legal authorities and enforcement powers based on their interpretations of whether a token functions as a security or a commodity.
Bipartisan action is being pushed for at both the House and Senate levels, with conflicting legislative approaches now confronting lawmakers. The Clarity Act (H.R. 5241), having gained momentum through a vote out of the House Financial Services Committee in July, proposes token regulation based on functional characteristics. Under this framework, many new crypto projects would initially be subject to SEC regulatory authority, including rules governing disclosure and anti-fraud provisions. Notably, the Clarity Act includes a generous three-year “safe harbour” period during which nascent projects would face limited SEC requirements as they develop, provided they demonstrate good-faith decentralization efforts. If decentralization reaches a “sufficient level” within this period, ongoing SEC reporting obligations would cease entirely.
Concurrently, a draft bill emerging from the Senate proposes a different framework, defining thousands of other crypto assets primarily as “ancillary assets.” These are investment contracts that clearly represent financial value being transferred, thereby avoiding traditional qualifying factors for securities such as profit participation or investment of capital with an expectation of return. However, this designation appears deliberately designed to position it closer to the commodity exception outlined for derivative cryptocurrency products under a separate classified asset test recently passed by the CFTC’s general counsel. Where an asset qualifies as an ancillary asset under the Senate approach, the CFTC would hold primary regulatory sway, yet the SEC would maintain limited ancillary oversight over disclosure requirements.
The divergent paths outlined in the two bills create significant friction ahead of this self-imposed September deadline and potentially later by the fourth quarter. Navigating this political minefield is complicated by the high stakes set by Sacks. Confirmation from the crypto regulator in White House official David Sacks about the September deadline implicitly echoed statements made by Treasury officials and the CFTC staff regarding their agreement in principle that rules governing other crypto assets needed be finalized before the end of the year. As articulated by a former White House official Sacks, part of his mission is ensuring appropriate norms and accountability systems exist before the market “grows up.”
Matt O’Connor, co-founder of the onchain fundraising platform Legion, acknowledged the political gamble involved: “The bar for eligibility is low, opening the door to a lot of decentralisation theater, and the consequences for not meeting the criteria have not been determined,” he cautions. “Between commodities and securities, ancillary assets exist as something of a third, grey-zone alternative.”
The inherent tension between the bipartisan proposals could spark parliamentary debate, beginning potentially with a floor vote for passage by the House committee. Finding common ground between the function-based approach favouring an SEC regulated safe harbour and the classification approach that provides regulatory certainty for asset categorization is a formidable task. The significant window closing towards the midterms presents formidable political risk to whichever side emerges ultimately victoriously or fails entirely, making legislative compromise imperative if definitive action is to be secured.
