A debate as to whether cryptocurrencies are more like commodities than securities is playing out in Washington, with Senators Cynthia Lummis (R-Wyoming) and Kirsten Gillibrand (D-New York) introducing legislation to regulate them like commodities. If passed, the bill would put digital currency under the regulatory purview of the Commodity Futures Trading Commission (CFTC) rather than the Securities and Exchange Commission (SEC), a win for the crypto sector, which prefers the smaller agency. SEC chair Gary Gensler takes the position that digital assets are akin to publicly traded stock and should be regulated by the SEC.

Gillibrand, a member of the Senate Agriculture Committee, which oversees the CFTC, and Lummis, who sits on Senate Banking Committee, responsible for SEC oversight, reject Gensler’s claim.

A joint press release says Lummis and Gillibrand’s months-long collaboration to “create a complete regulatory framework for digital assets that encourages responsible financial innovation, flexibility, transparency and robust consumer protections while integrating digital assets into existing law.”

The Washington Post reports that “aides to the senators said they worked with staff at both the SEC and CFTC on the language of the bill,” which was announced in March. As of May, Statista has estimated the market cap for cryptocurrencies at just under $1.3 trillion globally.

“The CFTC already regulates futures contracts for Bitcoin and Ethereum, the two most popular cryptocurrencies,” notes WaPo. “But the new proposal would give the agency wider power by handing it oversight of the crypto spot market as well — and envisions that market including a wide array of digital coins.”

“The bill would create a process for crypto trading platforms such as Coinbase to register with the CFTC,” writes WaPo, which calls the CFTC “far smaller than the SEC, with about a sixth of its budget.” The new bill proposes to increase CFTC resources by assessing a fee on the crypto companies it oversees.

“Advocates of tougher crypto regulation nevertheless argue that investors stand to suffer if the SEC is forced to take a back seat,” WaPo reports, quoting Center for American Progress director of financial regulation and corporate governance Todd Phillips saying, “the status quo would be better than this bill.”

A defining characteristic of the legislation is its definition of the majority of blockchain assets available to American investors and consumers. “With few exceptions, the bill designates digital currencies as ‘ancillary assets,’ or intangible, fungible assets that are offered or sold in tandem with a purchase and sale of a security. Those ancillary assets would be treated like commodities under U.S. law,” writes CNBC.

However, there is an exception. “Aides to Gillibrand and Lummis said their proposed law treats all digitals assets as ‘ancillary’ unless they behave like a security a corporation would issue to investors to build capital,” CNBC writes, explaining cryptocurrencies that entitle holders to “the privileges enjoyed by corporate investors like dividends, liquidation rights or a financial interest in the issuer” would be “treated like traditional securities under the Securities and Exchange Commission’s scrutiny.”

In April, The New York Times wrote that “in the absence of federal regulations, crypto lobbyists and executives are going state by state to get favorable rules enacted” with many lawmakers serving as “willing partners.”

The National Conference of State Legislatures lists 2022 cryptocurrency legislation state-by-state.