Introduction
The United States House Committee on Financial Services is advancing the legislation known as the “21st Century Financial Innovation and Technology Act,” or FIT21, with plans for a full House vote on the FIT21 bill by all members of the House this week.
The bill aims to clarify the roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in regulating crypto assets, particularly how they provide guidance and oversight for crypto assets.
For a long time, the American digital asset ecosystem has been plagued by regulatory uncertainty, stifling innovation and leaving consumers unprotected. #FIT21 aims to solidify America’s leadership position in the global financial system and strengthen our role as an international innovation hub. https://t.co/SI1ovRXk4c
— (@PatrickMcHenry) May 10, 2024
Summary of the FIT21 Bill
FIT21 was introduced in July 2023 and primarily advocated by Congressman Patrick McHenry and French Hill of the House Financial Services Committee. It is a comprehensive market structure bill.
The bill grants new jurisdiction to the CFTC over digital commodities and clarifies the SEC’s jurisdiction over digital assets offered as part of investment contracts, aiming to better protect consumer rights, ensure sound rules for crypto companies, and provide clarity for job creators and blockchain builders to prevent companies and investors from moving overseas, ensuring America’s leadership position.
Additionally, the bill will further clarify America’s crypto strategy, providing more references and safeguards for the development of the crypto industry.
The bill also establishes a process allowing crypto assets to be traded on secondary markets (if initially offered as part of an investment contract) and imposes comprehensive customer disclosure, asset protection, and operational requirements on all entities needing to register with the CFTC and/or SEC.
Primary Motivations behind the Push for FIT21
Firstly, reports indicate that by 2030, crypto technology will create 4 million jobs in the United States, with its growth potential having a very positive impact on the job market; currently, approximately 52 million Americans hold crypto assets, with millions engaged in crypto-related development and non-technical work, with around 70% earning less than $100,000 annually, facing various risks due to regulations and supervision, which has become an urgent issue to be addressed.
Secondly, 80% of Americans believe that the global financial system unfairly favors powerful interest groups, and due to a lack of clear regulatory provisions, many developers in the crypto industry leave the United States every year. Changing this situation requires legislative and regulatory bodies to be more standardized, providing clear guidance and space for the industry and practitioners.
Lastly, with the intense competition of the U.S. presidential election, cryptocurrencies have been highly scrutinized as tools of contention between Biden and Trump. It is reported that Biden and Trump have agreed to hold two debates on June 27 and September 10, with cryptocurrencies possibly being a topic of discussion. However, regardless of who wins, the risk of polarization in cryptocurrency regulation may be exacerbated, making it even more difficult for the two parties to reach a compromise, thus making it necessary to establish a legislative framework before the election.
Trump’s Complicating Regulation, While the Bill Would Bring Clarity
Trump has previously referred to BTC as a “scam,” stating that he would never allow the U.S. central bank to use digital currency and that he is “not a fan of digital assets.” However, in a speech at Mar-a-Lago earlier this month, the former president told supporters and investors in digital assets, “If you support cryptocurrency, you’d better vote for Trump,” and when it comes to the field of digital assets, he is now “satisfied.”
Pushed by 60 Crypto Entities, FIT21 Could Be Historic
In a letter to the leadership of the U.S. House of Representatives on May 16, about 60 companies represented by the Cryptocurrency Innovation Committee (CCI) called on legislators to pass the “21st Century Financial Innovation and Technology (FIT21) Act.” Signatories to the letter include top companies and institutions such as Coinbase, Circle, Block, Kraken, Gemini, Digital Money Group, Galaxy, and Stand With Crypto, urging American voters to contact their representatives and support the bill.
The support and push from this organization reflect the urgent need of U.S. crypto industry institutions and practitioners for legislation. If the FIT21 bill is passed, it will be a historic event, not only perfecting and making significant progress in regulatory policies but also signifying the full integration of the U.S. crypto industry into mainstream society and consciousness.
The CCI states, “We recognize that FIT21 will bring new compliance challenges for crypto asset companies, but regulatory clarity is undoubtedly more responsible and safer for consumers than 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.”
Apart from regulation, FIT21 also helps in providing protection in areas such as isolating customer funds, requiring risk disclosure, expanding bankruptcy protection, implementing minimum capital requirements, and addressing conflicts of interest.
The FIT21 Bill Will Be a Key Issue for the New Congress
With the landing of the U.S. BTC spot ETF and the rapidly growing influence of the crypto industry in the United States, the FIT21 bill aims to provide greater regulatory certainty for digital assets and eliminate some gray areas in regulation. As the competition for the election intensifies, crypto regulation has always been the main theme of the U.S. midterm elections, which is significant.
From recent news, Biden and Trump are also turning more towards 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 is still the election, and the polarization of attitudes towards cryptocurrencies in the United States still leaves uncertainty about the bill:
- The House and Senate overturned the SEC’s rules on how banks handle digital assets, marking the first time in this Congress that “independent crypto legislation” has been passed, although the bill has received bipartisan support from both chambers of Congress, U.S. President Joe Biden has said he plans to veto it;
- Trump’s capricious personality and past confusing operations make it difficult for people to determine whether, if Trump wins in November, he will continue to support cryptocurrencies and push for the bill’s enactment;
- The Senate banking sector may also not have done enough preparation for the Senate to pass legislation, and legislators’ attitudes are not yet clear on whether they will follow the precedent of overturning SEC rules to pass FIT21 or not.
Both the Republican and Democratic parties are strong supporters of the bill. The passage of the FIT21 bill is already a high probability event. However, with the election approaching, polarization still exists, and the House’s priority may not be guaranteed, as the bill must pass the other chamber and then be approved by President Joe Biden to take effect. Therefore, after the FIT21 bill is passed, it may not become law in this Congress, but will become a key issue for the work of the 2025/26 Congress, when efforts will need to be made to re-establish legislation on crypto market structure and shift the focus to the Senate to push for the bill’s enactment.
Conclusion
The passage of the FIT21 bill is a landmark legislative milestone that will be a crucial event for America in regulating the crypto industry. The votes of the Democratic and Republican parties in the House and Senate may reveal how legislators view the crypto industry.
Note: All of the above opinions are not investment advice. If there are any inappropriate points, please feel free to leave a message to correct them.
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