Source: Forbes
Compiled by: BitpushNews an
The wind of change is blowing in a clearer direction, and last week Washington's regulation of cryptocurrencies and digital assets also showed strong signs of spring.
After months of anticipation, the U.S. Congress has made significant progress on the Financial Innovation and Technology Act for the 21st Century (FIT21), the U.S. Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 121 (SAB121), and the CBDC Anti-Surveillance Act.
This landmark week marks the beginning of a new era for the U.S. cryptocurrency and digital asset industry in Washington.
Last week’s congressional progress was aided by the SEC ’s approval of a Bitcoin ETF earlier this year. Blackrock ’s Bitcoin ETF became the fastest-growing ETF in history, reflecting the long-term demand for Bitcoin from a trusted brand. Currently, the market expects the SEC to approve an Ethereum ETF soon.
BlackRock’s launch of a digital currency market fund on the Ethereum platform and Larry Fink’s aggressive advocacy of tokenizing financial markets have already attracted attention in Washington.
The United States appears to be moving quickly to catch up with other jurisdictions such as Europe, the UAE and Asia to better provide sound rules for the cryptocurrency and digital asset industry to enable it to compete in a new era of global digital financial innovation.
back to the Future
The Financial Innovation and Technology Act of the 21st Century (FIT21), passed by the House of Representatives last week, is an important manifestation of bipartisan support for the cryptocurrency and digital asset industry.
Commenting on FIT21, Patrick McHenry, Chairman of the House Financial Services Committee, said in a public statement: "FIT21 provides the necessary regulatory clarity and strong consumer protections for the digital asset ecosystem to thrive in the United States. The bill also ensures that the United States will lead the financial system of the future and continue to be a center for technological innovation.
Sheila Warren, CEO of the Council for Crypto Innovation (CCI), said: “FIT 21 is about investor protection, preventing market manipulation, achieving much-needed regulatory clarity, promoting financial inclusion, protecting national security, and more.
This vote represents years of tireless work by policymakers, their teams, and the industry at large to protect consumers and maintain America’s leadership in digital innovation. It proves that innovation and consumer protection can coexist in the digital asset space.
J. Christopher Giancarlo, former Chairman of the U.S. Commodity Futures Trading Commission ( CFTC ), commented: “I welcome this bill, which will provide regulatory clarity, consumer protection, and support innovation and financial inclusion here in the United States, and I am pleased to see that it has support from lawmakers across party lines.”
Notably, FIT21 will also limit the role of the U.S. Securities and Exchange Commission (SEC) in regulating digital assets while expanding the responsibilities of the CFTC.
Warren added: “Without FIT21, the SEC’s practice of overregulation and regulation through enforcement will continue, and the lack of regulatory clarity will only push compliant operators and innovators overseas, costing the United States its leadership in financial innovation.”
Elise Soucie, global director of policy and regulation at Global Digital Finance (GDF), said: “The bill is similar to the EU’s MiCA requirements and provides federal-level rules for the U.S. cryptocurrency industry.
"The bill now heads to the Senate, and while HJ Res 109 and FIT 21 still have a lot of work to do, this bipartisan support for cryptocurrency and digital asset regulation could prompt regulators like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to reevaluate their regulatory approaches."
Asset management costs are too high
SAB121 proposes to direct companies to mark all digital assets as liabilities on their balance sheets. For regulated banks and custodians, the proposal means they will need to hold one dollar in reserves for every dollar of cryptocurrencies and digital assets they hold.
From an industry perspective, this proposal is concerning because it would require risk-based capital to back assets on balance sheets, essentially making it prohibitively expensive for the financial services industry to participate in the cryptocurrency and digital asset markets and creating an unfair and uncompetitive environment for cryptocurrencies and digital assets in the financial services sector.
Linda Jeng, founder and CEO of Digital Self Labs, explained: “SAB 121 is also problematic because the requirement for balance sheet recognition deviates from the current accounting treatment of traditional custodial assets, which do not need to be recorded on a company’s balance sheet. The announcement has disincentivized banks and major institutions from providing custody services for digital assets.”
This has implications not only for banks but also for fintech companies, as they may need institutional players to bridge the gap with traditional financial markets.
Last week, Senate Majority Leader Chuck Schumer, along with ten other Democrats, passed HJ Res 109 (a joint resolution opposing SAB121) over the objections of US President Biden and sent it to the White House for signature (or veto).
Even though the financial industry had made their concerns about SAB 121 clear, the President issued a statement that he would veto H.J. Rest 109, which would force Congress to withdraw SAB 121.
Free from the influence of central bank digital currency
Another important piece of legislation also passed the House of Representatives last week. The Central Bank Digital Currency (CBDC) Anti-Surveillance Act has been sent to the Senate, which would prevent the Federal Reserve from issuing a "retail CBDC" and aims to protect the financial privacy rights of American citizens.
Giancarlo commented: “It should be indisputable that the federal government should not launch a U.S. central bank digital currency (CBDC), at least not until the key design elements of privacy, security, distribution, and economic stability are well understood, democratically addressed, and constitutionally sound, especially prohibiting unnecessary surveillance.
The CBDC Anti-Surveillance Act correctly emphasizes the importance of financial privacy and the key role of Congress in authorizing sovereign digital currencies. However, in the context of FIT21, which advocates innovation, the CBDC Anti-Surveillance Act appears to prohibit the Federal Reserve from not only issuing or providing CBDC services, but also testing the feasibility of issuing CBDC, including in collaboration or coordination with the private sector.”
Jeng agreed, adding: “The CBDC Anti-Surveillance Act, while laudable in addressing privacy concerns, could harm U.S. competitiveness as other countries move forward with CBDC issuance.
Giancarlo added: “This bill clearly restricts innovation at a time when America’s economic adversaries and competitors are launching central bank digital currencies (CBDCs) and taking advantage of America’s absence from standard-setting meetings. These adversaries are seeking to set global digital currency protocols that allow for surveillance, censorship, and control, the very thing we seek to oppose. I fear that the negative consequence of this legislation will be to undermine America’s ability to establish its enduring virtues of financial freedom and economic liberty in the future of digital currency and finance.”
The road ahead
While the results of the past week suggest a productive and relatively balanced approach to cryptocurrency and digital asset policy and regulation, uncertainty remains.
Overall, many in the industry will be encouraged by the progress made by Congress after months of apparent stagnation. But the work has just begun and there is still a lot to be done. However, US lawmakers may now have a little more trust in cryptocurrencies and digital assets.
Public-private sector collaboration has been critical to driving innovation and legislation in the United States over the past few months, and many policymakers and their teams, as well as industry and trade association teams across traditional financial services, cryptocurrencies, and digital assets, deserve credit.
The industry will continue to work with regulators and policymakers to develop proportionate, comprehensive regulatory frameworks for cryptocurrencies and digital assets that support responsible innovation and benefit U.S. citizens and businesses, as well as the borderless global digital ecosystem.
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