The House approved a controversial crypto regulation bill

Yesterday, the House voted 279-136 in favor of a bill that would establish new regulations for cryptocurrencies, with 71 Democrats joining nearly all Republicans in support of the measure.

Among other things, the industry-backed bill would introduce a “decentralization test” for each individual crypto product to determine whether it’s a commodity or security. Commodities are generally defined as tangible goods that can be traded, while securities represent ownership of an entity like a company.

Passing this decentralization test would require two conditions:

1. No person having “unilateral authority” to control a crypto product’s blockchain
2. No issuer or affiliated person having 20+% control over the digital asset or its voting power

Crypto products defined as decentralized under this test would be commodities regulated by the CFTC, while non-decentralized crypto would be deemed securities under the SEC’s authority.

Over at the SEC, the measure is less popular than Bernie Madoff. Agency ​​Chair Gary Gensler published a statement hours prior to the House vote urging lawmakers to reject the bill, saying it would put investors and markets “at immeasurable risk" by essentially allowing crypto issuers to self-certify that their products are digital commodities.

• Commodities are widely seen as subject to less stringent regulations than securities. For example: the SEC requires investor disclosures 2x/year for all securities, while commodities don’t require any reporting under CFTC rules.

Looking ahead… The bill now heads to the Senate, where analysts predict its chances of approval are less likely than the House. President Biden this week said he opposes the measure, but didn’t threaten to veto it.

🏛️🪙 Elsewhere on Capitol Hill: The SEC this week indicated it will likely approve applications for the first spot ether ETF, a surprise move that would allow Americans to invest directly in ether – the world’s second most-popular cryptocurrency – without having to actually buy or hold the asset.