Author: a16z
Compiled by: TechFlow
Later this month, the House of Representatives will vote on an important bill (HR 4763) that we think you should pay attention to.
The Financial Innovation and Technology for the 21st Century Act, also known as the FIT21 Act, if passed, would bring more clarity to U.S. cryptocurrency regulation, benefiting everyone in the industry. If passed, this bill would:
Providing a safe and efficient way for blockchain projects to launch in the United States;
Clarifying the lines between the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) regarding who regulates what in cryptocurrencies and whether digital assets are securities or commodities;
Ensure oversight of cryptocurrency exchanges and further protect American consumers by enforcing rules governing cryptocurrency transactions.
Below we share with you why this is so important.
What does this bill include?
FIT21 Act / HR 4763 establishes a regulatory framework for the U.S. digital asset market to:
Solve the unique structural problems of digital assets;
Provide clear and robust consumer protections;
It is important to clarify which digital assets are regulated by the Commodity Futures Trading Commission (CFTC) and which are regulated by the Securities and Exchange Commission (SEC). This is important because there are important differences in the definitions of "commodities" and "securities", which have important implications for how they are regulated.
The U.S. Commodity Futures Trading Commission (CFTC) will regulate digital assets as a commodity if the blockchain, or digital ledger, on which they run is functional and decentralized.
If its associated blockchain is functional but not decentralized, the SEC will regulate the digital asset as a security.
The bill defines decentralization as, among other requirements, if no person has unilateral power to control the blockchain or its use, and if no issuer or associated person has 20% or more control over the digital asset or voting power in the digital asset.
The bill also imposes other consumer protection requirements, such as segregation of customer funds; lock-up periods for token insiders (to incentivize innovation rather than just speculation); annual sales volume limits; and disclosure requirements.
These protections were somewhat similar to those put in place by regulators after the Great Depression, following the excesses of the 1920s boom and the stock market crash of 1929, but once they were in place, the United States enjoyed an era of unprecedented growth and innovation in its markets and economy.
What's not in this bill?
Some industry insiders worry that the bill gives the SEC too much jurisdiction because it sets a very high bar for decentralization and the ability to reclaim any token or project that re-centralizes. Others worry that the bill does not draw clear lines for the jurisdiction of the SEC and the CFTC.
However, while this bill is imperfect, it will provide the crypto industry with the regulatory certainty it needs to continue operating and innovating in the United States.
Some people ask, why do we need any form of regulation? No regulation is unrealistic, and clearer rules are better than confusing ones. Regulation, and a clear path for companies to comply, allows innovators to build trust with the public and deliver useful products, while holding any actors with bad intentions more accountable.
Who is behind this?
The FIT21 Act is a joint effort of the House Financial Services Committee (which oversees the Securities and Exchange Commission) and the House Agriculture Committee (which oversees the Commodity Futures Trading Commission), with industry support. Last July, the bill passed the Financial Services Committee with the support of six Democrats and all Republicans on the committee, and also passed the Agriculture Committee by unanimous consent. Since then, the bill has continued to enjoy bipartisan support.
Why now, and what can you do to help?
A vote on the bill, set to take place in the coming weeks, will serve as a referendum on cryptocurrency in the United States.
Therefore, it is critical to ensure that the bill passes with strong bipartisan support. After that, it will also need to pass the Senate and be signed into law by the President. So, we are now at a critical juncture. To do your part, we urge you to contact your local representatives through the Stand with Crypto website.
Why is this important?
Although the crypto industry has been around for more than a decade, there is no comprehensive regulatory framework for digital assets in the United States. The current regulatory framework is fragmented, incomplete, and lacks clarity. This regulatory uncertainty not only creates a confusing environment for innovation, but also provides a breeding ground for bad actors. As we have seen, it is easy for companies and individuals with bad intentions to launch products that exploit regulatory gaps.
Meanwhile, responsible actors — legitimate entrepreneurs and startups — are subjected to dubious “enforcement-based regulation.” This approach hurts American innovation, especially as other countries continue to innovate, and is detrimental to the long-term dominance of the dollar, to American consumers, and to the overall development of the U.S. economy.
Startup activity often moves abroad when other jurisdictions offer suitable regulatory regimes. This is not an abstract concern: startups create jobs, economic value, and can potentially grow into the next big tech company. For example, Amazon, Apple, Facebook, Google, Microsoft, Netflix, Nvidia, and Salesforce are all companies founded in the United States, some in the past 20 years alone. Today they not only dominate market value, but also profoundly impact our daily lives. FIT21 allows the crypto industry to have the same potential by creating an environment that supports innovation while avoiding a situation where a few large tech companies dominate the market and act as gatekeepers for the majority.
Whatever you think of cryptocurrency, it is more than just a financial opportunity; it represents a significant technology platform shift, just as personal computers, cell phones, and the internet transformed our world. Despite being one of the most important technological innovations in human history, the internet is failing the consumers, creators, and developers who rely on it today. Blockchain, cryptocurrency, and Web3 can solve this problem in many ways: from proof of authenticity against deepfakes and identity proofing against AI, to more voice and choice in social media platforms, to more inclusive payment systems, and more. But we need an enabling environment for these innovations to continue to thrive in the United States.
