JPMorgan: Cryptocurrency Market Structure Bill May Pass by Mid-Year, Boost Market in Second Half

On March 2, JPMorgan Chase analysts said U.S. cryptocurrency market structure legislation could pass by mid-year, with expectations it will boost the market in the second half of 2024. The proposed **CLARITY Act** aims to establish a digital asset classification framework, labeling tokens as either: - "Digital commodities" (overseen by the Commodity Futures Trading Commission, CFTC), or - "Digital securities" (regulated by the Securities and Exchange Commission, SEC). The House of Representatives has advanced related bills, while the Senate remains in negotiations. Key sticking points include: - Crypto firms want to offer returns or reward mechanisms for stablecoins, but the banking industry worries this could trigger deposit outflows; - Democratic lawmakers are pushing for stricter conflict-of-interest rules covering senior officials and their family members (including the President) regarding holdings and related-party transactions. Highlights of the legislation include: - A "grandfather clause" allowing certain tokens to fall under CFTC regulation; - Exemption from full SEC registration for projects with annual funding under $75 million; - A pathway for security-type tokens to transition to commodity-type tokens if they achieve "sufficient decentralization"; - Clarified custody standards and registration requirements; - Exemptions for developers during the development phase (excluding custody operations); - Tax clarity, including exemptions for small transactions and staking rules; - Support for the development of asset tokenization. Separately, the SEC has adjusted its regulatory stance. SEC Commissioner Hester Peirce noted the Division of Trading and Markets has revised capital treatment for some stablecoin broker-dealers, cutting the previous 100% market value reserve requirement to a 2% risk reserve ratio. The bill would also bar regulators from requiring financial institutions to list customer digital assets as on-balance-sheet liabilities or hold additional capital (beyond operational risks) — a move seen as institutionalizing the repeal of SEC Staff Accounting Bulletin No. 121 (SAB 121).