The Legislative Move
On December 20, 2019, Representative Paul Gosar of Arizona introduced a draft bill to the United States House of Representatives that sent ripples through the cryptocurrency industry. The Crypto-Currency Act of 2020 represents one of the most ambitious attempts to bring regulatory clarity to digital assets at the federal level, proposing a three-tier classification system that assigns oversight responsibilities to existing financial regulators rather than creating new ones.
The timing was significant. Bitcoin was trading around $7,191, Ethereum sat near $128, and the total cryptocurrency market capitalization hovered well below its 2017 peaks. Despite a prolonged bear market, legislative momentum was building in Washington. Lawmakers had watched Libra, Facebook’s controversial stablecoin project, trigger alarm bells across regulatory agencies worldwide, and the urgency for a comprehensive framework had become impossible to ignore.
The Act does not introduce any new regulatory bodies. Instead, it divides digital assets into three broad categories — crypto-currencies, crypto-commodities, and crypto-securities — and assigns each to an existing federal agency with relevant expertise. The approach was praised by industry participants who had long complained about overlapping jurisdictions and conflicting guidance from the SEC, CFTC, and FinCEN.
Jurisdiction Context
Under the proposed framework, crypto-currencies — defined as representations of US currency and reserve-backed digital assets, including stablecoins collateralized by synthetic or physical assets held in correspondent banking accounts — fall under the jurisdiction of the Financial Crimes Enforcement Network, or FinCEN. Tokens such as TrueUSD, Tether’s USDT, Paxos Standard, and USD Coin are explicitly named in this category.
Crypto-commodities, encompassing tokens based on commodities or other economic goods and services, would be regulated by the Commodity Futures Trading Commission. This category captures the majority of existing cryptocurrencies, including Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The classification effectively endorses the view that major proof-of-work cryptocurrencies function more like commodities than securities — a position the CFTC had been advocating for years.
Crypto-securities — tokens representing debt, equity, and derivative instruments on a blockchain, including those governed by smart contracts and collateralized by other digital assets — fall squarely under the Securities and Exchange Commission. Projects like Tezos, tZero, Bancor, and Vertalo are explicitly listed. This classification addresses the long-running debate about whether certain token offerings constituted unregistered securities sales.
Industry Reaction
The cryptocurrency industry’s response to the draft legislation was largely positive. For years, companies building on blockchain technology had struggled with regulatory uncertainty. Startups did not know whether their tokens were securities, commodities, or something else entirely, and the cost of compliance with multiple overlapping frameworks was crippling innovation.
The clarity offered by the three-category approach was seen as a breakthrough. By naming specific tokens and assigning them to specific regulators, the Act gave projects a clear path forward. Industry advocates noted that the framework aligned with recommendations they had been making since 2017, when the ICO boom first forced regulators to confront the classification problem.
However, the bill’s provisions on privacy coins drew sharp criticism from civil liberties groups and privacy advocates. The Act requires each agency to issue rules mandating that all crypto-currencies — including synthetic stablecoins — allow for the tracing of transactions and persons engaging in such transactions, in a manner similar to requirements imposed on traditional financial institutions. This provision directly targets privacy-focused cryptocurrencies like Monero, Zcash, Dash, Verge, and Horizon, effectively threatening their legal existence in the United States.
Compliance Hurdles
The traceability mandate represents a significant compliance challenge. It aligns the United States with the Financial Action Task Force’s new “travel rule,” which requires reporting on crypto transactions exceeding $1,000. For exchanges and custodians, implementing these requirements means overhauling compliance infrastructure, developing new monitoring tools, and potentially delisting privacy coins entirely.
The three-agency structure, while clearer than the status quo, still leaves gaps. Tokens that could plausibly fit into multiple categories — a stablecoin backed by tokenized real estate, for example — may trigger jurisdictional disputes. The Act also does not address how tokens that evolve over time should be reclassified, a critical issue given that many blockchain projects shift their utility and economic models as they mature.
For institutional investors, the framework provides a measure of comfort. Knowing which regulator oversees a given asset class makes it easier to conduct due diligence, assess risk, and allocate capital. But the lack of coordination mechanisms between FinCEN, the CFTC, and the SEC remains an open question that future rulemaking will need to address.
What’s Next
As a draft bill introduced in the House, the Crypto-Currency Act of 2020 faces a long legislative journey. It must pass through committee, secure bipartisan support, and survive the inevitable lobbying from both the cryptocurrency industry and traditional financial institutions that view digital assets as competitive threats. The traceability provisions alone are likely to generate heated debate about the balance between financial surveillance and individual privacy.
What is clear is that the regulatory landscape for cryptocurrency in the United States is entering a new phase. The days of ambiguity and enforcement-driven policy are giving way to legislative action, and the Crypto-Currency Act of 2020 — regardless of its final form — has already shaped the conversation about how digital assets should be governed in the world’s largest economy.
Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. The Crypto-Currency Act of 2020 was a draft bill and had not been enacted into law at the time of writing. Readers should consult qualified legal professionals for guidance on regulatory compliance.
gosar splitting oversight into three agencies seemed clean on paper but created massive jurisdictional overlap. fincen vs sec vs cftc fighting over the same tokens for years after
jurisdictional overlap was the feature not the bug. gosar wanted agencies competing for crypto oversight which sounds good until they all claim jurisdiction over the same token
jurisdictional overlap was the point. gosar knew agencies would fight over crypto oversight and hoped competition would produce better rules. didnt work out that way
BTC at $7,191 when this dropped and everyone was focused on the Libra hearings. Funny how the regulatory groundwork from 2019 shaped everything happening now
libra hearings forced congress to actually understand crypto for the first time. before that most senators thought bitcoin was a video game currency
senators literally asked Zuckerberg what money was during those hearings. the educational bar was below zero
splitting assets into crypto-currencies, crypto-commodities, and crypto-securities was ahead of its time. the current howey test mess proves we needed clearer categories 6 years ago
the three category system would have prevented the is-it-a-security lawsuits that drained millions from projects. we lost 6 years of innovation to regulatory ambiguity
the three category system was clean on paper but the SEC still claims most tokens are securities. gosars framework got ignored because enforcement pays better than clarity
the SEC keeps calling everything securities because giving up the classification means losing budget and jurisdiction
Daria P. the budget angle is real. every token the SEC reclassifies is one less enforcement target. why would they voluntarily shrink their own jurisdiction
three clean categories on paper and the SEC still calls everything a security 7 years later. gosar was right, the agencies just didnt want to give up jurisdiction