[Despite friction between CFTC and SEC, FIT21 still considers cryptocurrencies to be a “watershed moment”]
U.S. digital asset legislation FIT21 passed the House of Representatives with overwhelming bipartisan support, marking a major milestone for the U.S. digital asset ecosystem. 71 Democrats and 208 Republicans supported the legislation, giving it a two-to-one margin of passage. Kristin Smith, CEO of the Blockchain Association, said this shows that both parties are willing to work together and that Congress, not the Securities and Exchange Commission (SEC), should set policy.
Smith added that the crypto industry is more organized than ever and now has all the ingredients to drive smart policies. On May 22, the U.S. House of Representatives Financial Services Committee described the passage of FIT21 as “a watershed moment for the U.S. digital asset ecosystem.” Not only did FIT21 receive more bipartisan support than its strongest supporters expected, but a third of House Democrats, including former Speaker Nancy Pelosi, also supported the legislation.
This happened almost simultaneously with the SEC’s “change” in its attitude toward Ethereum. Zach Zweihorn, a partner at law firm Davis Polk, said the SEC’s approval of an Ethereum spot market exchange-traded fund (ETF) on May 23 was a dramatic shift in itself. In addition, the May 16 Congressional Review Act vote on Clerk Accounting Notice 121 received 60 votes in the Senate, including support from prominent Democrats such as Chuck Schumer, making it easier for highly regulated financial institutions and companies to act as digital assets Custodian.
One potential friction point with FIT21 is its “dual-agency” regulatory regime. Depending on the degree of decentralization of the underlying network or project, digital assets will be regulated by the SEC or the Commodity Futures Trading Commission (CFTC). Commodities regulators will oversee decentralized assets such as Bitcoin, while the SEC may regulate tokens used to raise funds for new digital projects, such as initial coin offerings.
Kadan Stadelmann, chief technology officer of Komodo, said FIT21 should help reduce some of the SEC’s power over the crypto space. Currently, the SEC, under Chairman Gary Gensler, has too much control and its decisions have hindered blockchain innovation in the United States.Jack Solowey, fintech policy analyst at the Cato Institute, added that FIT21’s framework is a first step in arguing that there should be a limiting principle to limit the SEC’s jurisdiction.
Stadelmann believes that the United States needs some kind of comprehensive crypto regulation to keep up with the European Union, Switzerland, Singapore, and the United Arab Emirates. FIT21 is really more of a framework than a finished crypto regulatory blueprint, and perhaps the specifics can be negotiated later.
Challenges remain over the chances of FIT21, or some form of it, being signed into law in the U.S. election year of 2024, but many believe it has a good chance of passing. A new poll from DCG and Harris Poll shows that one in five swing state voters consider cryptocurrencies to be a significant issue in the election.
President Biden has not threatened to veto the FIT21 legislation, while expressing a willingness to work with Congress to develop "a comprehensive and balanced regulatory framework for digital assets," meaning there is room for negotiation to reach a workable legislative solution. While FIT21 faces a difficult challenge in the Senate, the recent 60 votes the SAB 121 veto passed in the Senate shows that it is not impossible.
Overall, the passage of FIT21 marks an important turning point in the regulation of digital assets in the United States. The future legislative and regulatory framework will have a profound impact on the development of the cryptocurrency market.
