Introduction

The U.S. House Financial Services Committee is pushing for the legislation of the "Financial Innovation and Technology for the 21st Century Act," known as "FIT21." The full House plans to vote on the FIT21 bill this week.

The bill aims to clarify the roles of the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) in the regulation of crypto assets, particularly how they will provide guidance and oversight for crypto assets.

For a long time, the U.S. digital asset ecosystem has been plagued by regulatory uncertainty, stifling innovation and leaving consumers unprotected. #FIT21* will solidify America's leadership in the global financial system and strengthen our role as an international innovation hub.* https://t.co/SI1ovRXk4c

--- Patrick McHenry (@PatrickMcHenry) May 10, 2024

Overview of the FIT21 Bill

FIT21 was introduced in July 2023, primarily advocated by Congressman Patrick McHenry and French Hill of the House Financial Services Committee. It is a comprehensive market structure bill.

The bill will grant the CFTC new jurisdiction over digital commodities and clarify the SEC's jurisdiction over digital assets offered as part of investment contracts, aiming to better protect consumer rights, ensure crypto companies have sound rules, and create clarity for job creators and blockchain builders, preventing companies and investors from moving overseas and ensuring U.S. leadership.

At the same time, the bill will further clarify America's crypto strategy, providing more references and guarantees for the development of the crypto industry.

The bill also establishes a process that allows crypto assets to be traded in secondary markets (if they were initially offered as part of an investment contract) and imposes comprehensive customer disclosure, asset protection, and operational requirements on all entities required to register with the CFTC and/or SEC.

Main Reasons for Promoting FIT21

First, according to a report: by 2030, crypto technology will create 4 million jobs in the U.S., and its growth potential has a very positive impact on the job market; currently, about 52 million Americans hold crypto assets, with millions engaged in crypto-related development and non-technical jobs, about 70% of whom earn less than $100,000 and face various risks due to regulations and oversight, which has become an urgent issue that needs to be addressed.

Second, 80% of Americans believe the global financial system unfairly favors powerful interest groups, and due to the lack of clear regulatory provisions, many developers in the crypto industry leave the U.S. every year. Changing this situation requires legislative and regulatory bodies to provide clearer guidelines and space for the industry and practitioners.

Finally, the U.S. elections are fiercely contested, and cryptocurrencies have gained significant attention as tools in the Biden-Trump rivalry. It is reported that Biden and Trump have agreed to hold two debates on June 27 and September 10, where cryptocurrencies may become a topic of discussion. However, regardless of who wins, the risk of polarized crypto regulation may be exacerbated, making it more difficult for the two parties to reach a compromise, and clarifying the legislative framework before the elections has become a necessity.

Trump complicates regulation; passing the bill will clarify things

Trump has previously called BTC a "scam," stating he would never allow the U.S. central bank to use digital currency and claimed he is "not a fan of digital assets." However, earlier this month, during a speech at Mar-a-Lago, he told digital asset supporters and investors, "If you support cryptocurrencies, you better vote for Trump," and when it comes to the digital asset space, he now "feels good about it."

60 Crypto Entities Push for FIT21, Potential Historic Event

In a letter to the U.S. House leadership on May 16, approximately 60 companies, represented by the Crypto Currency Innovation Committee (CCI), urged lawmakers to pass the "Financial Innovation and Technology for the 21st Century (FIT21) Act." Signatories of the letter include leading companies and institutions such as Coinbase, Circle, Block, Kraken, Gemini, Digital Money Group, Galaxy, and Stand With Crypto, urging U.S. voters to contact their representatives and support the bill.

The support and push from this organization reflect the urgent need for legislation from the U.S. crypto industry and practitioners. If the FIT21 bill passes, it will be a historic event, representing significant progress in regulatory policy and marking the true integration of the U.S. crypto industry into mainstream society and consciousness.

CCI stated: "We recognize that FIT21 will bring new compliance challenges for crypto asset companies, but regulatory clarity is undoubtedly more responsible and safer for consumers, and preferable to the current situation." "Currently, digital asset companies are required to comply with U.S. securities laws designed nearly 100 years ago, without considering today's technological advancements, including the ability to trade at internet speed."

In addition to regulation, FIT21 also helps provide protections in areas such as segregating customer funds, requiring risk disclosures, expanding bankruptcy protections, implementing minimum capital requirements, and addressing conflicts of interest.

FIT21 Will Be a Key Issue for the New Congress

With the approval of the BTC spot ETF in the U.S., the influence of the crypto industry is rapidly growing and expanding. The FIT21 bill aims to provide greater regulatory certainty for digital assets and eliminate some gray areas in regulation. As the election battle intensifies, crypto regulation has remained a major theme in the U.S. midterm elections, which is significant.

Recent news indicates that both Biden and Trump are increasingly turning to significant policy changes in regulatory frameworks to address issues such as consumer protection, financial stability, and national security, while considering cryptocurrencies. The likelihood of the FIT21 bill passing is very high. However, the main theme remains the elections, and the polarized attitude of the U.S. towards cryptocurrencies also leaves the bill with uncertainties:

• The House and Senate overturned the SEC's regulations on how banks handle digital assets, marking the first time this Congress has passed "independent crypto legislation." Although the bill has bipartisan support in both chambers, President Joe Biden has indicated he plans to veto it;
• Trump's unpredictable nature and past confusing actions make it difficult to determine whether he would continue to support cryptocurrencies and push for the bill's passage if he wins in November;
• The Senate Banking Committee may also not be sufficiently prepared for the Senate to pass legislation, and lawmakers' attitudes remain unclear regarding whether they will follow the previous overturning of SEC regulations to pass FIT21.

Both the Republican and Democratic parties are strong supporters of the bill, making the passage of the FIT21 bill a high-probability event. However, with the elections approaching, the polarized attitudes remain, and the priorities of the House cannot be guaranteed, as the bill must pass the other chamber and then be approved by President Joe Biden to take effect. Therefore, even if the FIT21 bill passes, it may not become law in this Congress but rather become a key issue for the 2025/26 Congress, requiring renewed efforts to draft crypto market structure legislation and shift focus to the Senate to push for the bill's passage.

Conclusion

The passage of the FIT21 bill would be a milestone legislation, marking a key event in the regulation of the crypto industry in the U.S. The votes from both the Democratic and Republican parties in the House and Senate may reveal how lawmakers view the crypto industry and crypto assets. The passage of the bill will further solidify America's leadership in the global financial system for decades to come and strengthen its role as an international innovation hub.

Note: All views expressed above are for reference only. What are your thoughts on the proposed FIT21 bill and its potential impact on the future of digital asset regulation in the U.S.? Feel free to reach out with your insights.