Things change fast in the world of crypto.

Prices were at dizzying heights in November, and then came the crash. In just a couple of weeks in May, cryptocurrencies lost more than half a trillion dollars in market value.

The most spectacular implosion was a cryptocurrency called TerraUSD. It was a stablecoin – meaning its value was supposed to be pegged to the U.S. dollar through a complicated algorithm.

Instead, it tanked and is now virtually worthless.

That crash reignited calls for new rules to govern a cryptocurrency market that is still something of a wild frontier. And now we have perhaps the biggest step yet toward new crypto regulation.

Two senators — a Republican and a Democrat — teamed up to unveil a broad new regulatory bill last week. But skeptics are already warning it's a step backwards and is far too crypto-friendly.

Let's unpack what's going on and why a big question is who would regulate crypto.

What is the current setup?

Nearly everyone believes the crypto industry needs some sort of regulation.

New cryptocurrencies are born by the hour — and along with them, plenty of scams and fraud. The industry is currently overseen by a patchwork of federal and state regulations, which haven't always evolved as quickly as the technology has.

The Securities and Exchange Commission (SEC) has brought dozens of crypto-related enforcement actions in the past few years. So has the Commodity Futures Trading Commission (CFTC).

After the May crash, Treasury Secretary Janet Yellen called on Congress to pass "comprehensive" regulations on stablecoins in particular.

Democratic Senator Kirsten Gilibrand, of New York, says this phase of the internet's evolution – with cryptocurrency and other technologies known collectively as Web3 – poses similar risks to the early days of social media – sometimes called Web2.

"Congress failed to regulate Web2," she said. "We failed to create a regulatory agency over various platforms that are now doing extreme harm to our youth and dividing this country. We are not going to make the same mistake with Web3."

What is this new bill then?

It was introduced earlier this month by Senator Gillibrand and Senator Cynthia Lummis, a Republican from Wyoming.

It lays out a framework for regulating the crypto industry.

This includes tax requirements for various digital assets, and imposing stricter requirements for stablecoins, which, according to Gillibrand, would have disallowed the TerraUSD coin that imploded in May.

It also has provisions about cybersecurity, the possible creation of a self-regulatory organization, and some disclosure requirements. And it includes provisions directing the Federal Energy Regulatory Commission to study the energy impact of the cryptocurrency industry.

But perhaps most importantly — and the thing that has skeptics most concerned — is that the bill defines most cryptocurrency as commodities, which would be overseen by the Commodity Futures Trading Commission (CFTC), instead of securities, which would fall to the much bigger Securities and Exchange Commission (SEC).

The SEC is headed by Gary Gensler — one of the sharpest crypto critics, who has said the crypto industry is "rife with fraud, scams and abuse." He beefed up the SEC's crypto enforcement team early in May, and after the crypto crash asked Congress for more funding, saying the team was still "out personed."

But Senator Gillibrand said it made sense for the CFTC to do the heavy lifting.

"It would be inappropriate for the SEC to regulate some of these markets because they don't function like securities," she said. "Chair Gensler has already said ... the words that 'Bitcoin is a commodity,' because he understands that it's a form of value in the same way that gold is a form of value, in the same way that oil is a form of value, and that it's more appropriately placed under the CFTC."

Both senators are optimistic about the future of crypto. Lummis bought her first Bitcoin back in 2013 and owned more than $100,000 worth as of her most recent financial disclosure. She said this bill tried to find the "sweet spot" when it comes to regulation.

"So people who are innovating in this space know the rules of the road and people who are consuming the ultimate products know that the consumer protection elements are there," Lummis said.

The bill is still a long way from becoming law. In terms of timing for a floor vote, Lummis said: "We're talking months." She has previously acknowledged the sweeping bill may ultimately be broken up into parts to go through the relevant committees.

What the critics say

There are a number of technology and finance experts who say that cryptocurrency is a purely speculative asset, and one that serves no real purpose.

And this month, a group of them wrote a letter to leaders in Congress, asking that they: "Ensure that individuals in the U.S. and elsewhere are not left vulnerable to predatory finance, fraud, and systemic economic risks in the name of technological potential which does not exist."

One of the signatories was Molly White, a software engineer who runs the blog Web3 Is Going Just Great, which documents instances of fraud and catastrophe in the crypto universe. And she is not a fan of the new bill.

"It is very much what I think the cryptocurrency industry was hoping to see from regulators, which is a very limited set of regulations applied to the industry," she said.

Some in the industry have responded positively so far. The Crypto Council for Innovation called it a significant step forward, and the Blockchain Association called it a "milestone moment."

One of the biggest problems White has with the legislation is precisely that it hands over most of the regulatory power to the CFTC instead of the SEC.

White says cryptocurrencies aren't like traditional commodities like wheat or oil, so the CFTC shouldn't be the main regulatory muscle.

"Cryptocurrencies are more like securities because people broadly put money into them hoping for a return on their investment," White said. "And when someone is engaging with something as an investment, that's a good sign that it should go to the SEC."

What's more, White said the CFTC simply wasn't equipped to handle the workload — even if the bill allows the CFTC to impose a fee on digital asset exchanges to help fund its large role.

"There would need to be a major change in the amount of resources going to the CFTC for them to suddenly take on this enormous and much broader set of issues than they've dealt with in the past," she said. "And the SEC is frankly just more experienced in this field already."

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