- The CFTC would regulate decentralized blockchains and cryptocurrencies.

- The SEC would oversee centralized cryptocurrencies.

- Cryptocurrencies with more than 20% held by a single entity or person would be classified as centralized.

- Crypto exchanges are under dual regulation to prevent conflicting laws.

- Stablecoins are excluded from the FIT-21 act and are expected to be governed by a separate act.

US Congress Approves FIT-21 Act

In a landmark decision, the US Congress has successfully passed the Financial Innovation and Technology Act for the 21st Century (FIT-21), aiming to position the United States as a leading hub for cryptocurrency innovation. The bipartisan bill, passed three days ago, reflects a collaborative effort across party lines to embrace the burgeoning crypto industry.

Anticipation is high that President Joe Biden will endorse the bill without vetoing it, despite earlier speculation suggesting a potential veto. This speculation remained unconfirmed, but the president's support is crucial for the bill's enactment.

Prominent congressional leaders, including Representative French Hill, Chairman of the Subcommittee on Digital Assets, have been vocal proponents of the bill. Their support underscores the significance of the legislation in resolving the regulatory ambiguities surrounding cryptocurrencies in the United States.

Key Provisions of the FIT-21 Act

The FIT-21 Act aims to clearly delineate regulatory responsibilities over digital assets like cryptocurrencies and blockchain technologies. Notably, it does not provide guidelines for the regulation of stablecoins or non-fungible tokens (NFTs).

Regulatory Power Distribution

The act seeks to allocate regulatory authority among US governmental bodies, ending the implicit competition between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Previously, the CFTC regarded cryptocurrencies such as Bitcoin as commodities akin to gold, while the SEC viewed them as securities. This divergence created significant regulatory uncertainty, particularly regarding assets like Ethereum, which the SEC initially suggested as a security but later excluded from this classification in 2018.

Criteria for Decentralization

Under the FIT-21 Act, regulatory jurisdiction is divided based on the decentralization of a blockchain network. A blockchain is considered decentralized if no single entity or individual holds more than 20% of its token supply. This entity could be an individual, foundation, trust, LLC, or company.

CFTC Oversight

The CFTC is tasked with regulating decentralized blockchains in a manner similar to commodities. Cryptocurrencies like Bitcoin, Ethereum, and XRP fall under this category, with Bitcoin and Ethereum being recognized as decentralized and XRP having a judicial verdict affirming its status.

SEC Oversight

The SEC retains authority over non-decentralized blockchains and cryptocurrencies. This delineation follows significant legal precedents, including the statement by former SEC Director William Hinman that Bitcoin and Ethereum are not securities, and the Ripple vs. SEC case, which ruled that Ripple's retail sales did not qualify as securities under the Howey Test.

Joint Regulation

In certain scenarios, joint regulation by the SEC and CFTC is mandated, particularly concerning cryptocurrency exchanges that deal with both centralized and decentralized assets. This collaborative approach aims to harmonize regulatory frameworks and alleviate the burden of navigating dual regulations.

Exclusion of Stablecoins

The FIT-21 Act notably excludes stablecoins from CFTC and SEC regulation, except in cases of fraud or exchange involvement. Stablecoins continue to be regulated primarily by state laws, such as New York's Department of Financial Services, which recently directed Paxos to cease minting BUSD stablecoin. They are also partially governed by the Bank Secrecy Act.

The introduction of the Lummis-Gillibrand Payment Stablecoin Act represents a further legislative effort to regulate stablecoins, building on the earlier Responsible Financial Innovation Act by the same lawmakers.

Disclaimer

Voice of Crypto strives to provide accurate and timely information but cannot be held responsible for any omissions or inaccuracies. Cryptocurrencies are highly volatile financial instruments; therefore, thorough research and careful financial decision-making are advised.

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