On the afternoon of May 22nd, local time, the Republican-led “Financial Innovation and Technology for the 21st Century Act” (FIT-21 Act) was passed in the House of Representatives with 279 votes in favor and 136 votes against. This is the first comprehensive encryption legislation to be voted on in the House of Representatives and has received bipartisan support from Democrats, with 71 Democrats voting in favor of the bill. It is considered the most significant legislative achievement for the cryptocurrency industry in Congress.
The next baton will be handed over to the Senate, and although the prospects are uncertain, it has already been proven that US lawmakers’ views on cryptocurrencies are changing, and the cryptocurrency industry has taken a “big step” forward.
The FIT-21 Act will clearly define the regulatory boundaries of the cryptocurrency industry, granting the Commodity Futures Trading Commission (CFTC) primary jurisdiction over the industry, while the Securities and Exchange Commission (SEC) will have its jurisdiction “sacrificed”.
FIT-21 will create tailored disclosure and registration systems for digital asset companies. Cryptocurrency companies have long believed that the SEC’s insistence on traditional disclosure requirements is not feasible.
Specifically, the bill will give the CFTC more power and funding to oversee the cryptocurrency spot market and “digital commodities,” especially Bitcoin. The bill also establishes a process that allows for secondary market trading of digital commodities “initially offered as part of an investment contract.” The bill also includes provisions on stablecoins and anti-money laundering.
Ron Hammond, Director of Government Relations at the Blockchain Association, said, “In the past 48 hours, we have seen grassroots and political forces in the cryptocurrency industry lead to a significant change in Washington, D.C.’s view of the industry. This change in perspective seems to not only have changed Congress’s view of the industry prior to the FIT-21 vote, but it may also eliminate regulatory barriers that the chairman of the SEC has sought to establish.”
Hammond added that FIT-21 is a “major turning point.”
While the bill may face obstacles in the Senate, most analysts and industry insiders point out that although it is unlikely that FIT-21 will be introduced in the Senate this year, the bill may lay the foundation for the next Congress in January.
Davis Polk attorneys wrote in a letter to clients, “Despite facing difficult approval in the Senate and the possibility of a presidential veto if it advances to the next stage, this effort marks the most important milestone to date in establishing a comprehensive regulatory framework for the U.S. digital asset market. The fact that the bill is being put to a vote in the House of Representatives alone reflects the importance many members of Congress attach to this issue.”
However, some believe that Wednesday’s vote could result in a significant bipartisan statement.
An industry insider familiar with congressional negotiations told MarketWatch, “I don’t think we should be so pessimistic about the Senate and assume they won’t take action on this before the end of the year.”
One reason for optimism is that last week the House and Senate voted to overturn the SEC’s accounting guidance, with more than 20 House Democrats, including New York Majority Leader Chuck Schumer, and more than a dozen Senate Democrats voting to overturn the rule despite the Biden Administration’s wishes.
President Joe Biden had previously promised to veto the bill but has not yet done so.
A cryptocurrency lobbyist affiliated with the Democratic Party told MarketWatch that the bill proves “the Biden administration has realized that it does not understand this issue” and that it is seen as a political risk associated with being anti-cryptocurrency before a difficult re-election battle.
Meanwhile, the bill includes many provisions supported by Democrats, including expanding CFTC’s oversight of the cryptocurrency spot market and exchanges, as well as requiring cryptocurrency intermediaries to comply with anti-money laundering requirements and the Bank Secrecy Act.
Industry insiders say another argument that influenced some Democrats is that the current Supreme Court has been highly skeptical of financial regulatory agencies’ claims to new powers, and if Congress does not act now, the Supreme Court could ultimately decide the future of cryptocurrency regulation.
Todd Phillips, a financial regulation expert at the left-leaning Roosevelt Institute, argued in a recent briefing that the legal arguments for the cryptocurrency industry are not unpersuasive, and that based on historical and congressional intent arguments, it may convince this (the most conservative court in nearly a century) court to stand with the industry.
According to a letter sent to Democratic colleagues on Monday, powerful Democrats in Congress, including Maxine Waters, the Democratic leader of the House Financial Services Committee, “strongly oppose” this legislation. However, Politico reported that Democratic leadership has decided not to focus on opposing the bill.
Cantrell Dumas, Director of Derivatives Policy at Better Markets, a financial reform organization, said in a statement on Tuesday, “Congress should consider whether this legislation leaves loopholes to evade the oversight of the Securities and Exchange Commission, similar to unregulated derivatives before the 2008 financial crisis.”
He expressed concerns shared by many congressional Democrats and added, “Legislators must also ask whether the resources provided to the CFTC in the bill are sufficient to meet the needs of underfunded institutions. Without adequate funding, increasing the authority of the CFTC will inevitably severely hamper its ability to fulfill the important responsibilities that all Americans rely on and benefit from.”
It is also urgent to persuade Democratic leaders such as Hakeem Jeffries, the minority leader in the New York House, to support the bill, as Sherrod Brown, an Ohio Democrat on the Senate Banking Committee, has stated that he does not support cryptocurrency market structure legislation.
Ian Katz, a financial services analyst at Capital Alpha Partners, wrote in a client report this week, “The Senate typically doesn’t take a bill from the House and vote on it, so while the Senate might ultimately be interested in considering some kind of cryptocurrency legislation, it almost certainly won’t be the FIT-21 Act.”
Patrick McHenry, Chairman of the House Financial Services Committee, will retire when his term ends in January 2025. He told reporters at a briefing on Tuesday that he will “do everything possible to get everything possible from Congress” and expressed confidence in bipartisan support. He said, “My time as chairman and my time in Congress may be coming to an end, but the policy is not ending.”
Author: Mary Liu from Bitpush News
