The House of Representatives is set to take up the Financial Innovation and Technology for the 21st Century Act (FIT21) bill that would divide oversight of cryptocurrency regulation between the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) based on the level of centralization of associated blockchains. The SEC would regulate tightly controlled cryptos, while more decentralized tokens like bitcoin and possibly ether would fall under the purview of the CFTC. This move aims to end a perceived turf war between the two agencies and provide a clear framework for resolving regulatory disputes regarding crypto.
The FIT21 bill, advanced by the House Financial Services Committee in July, also seeks to enhance transparency and accountability of crypto exchanges, brokers, and dealers, as well as provide a compliant method for blockchain developers to raise funds. According to the legislation, the CFTC would regulate a cryptocurrency as a commodity if its blockchain is functional and decentralized, while the SEC would oversee a digital asset as a security if its associated blockchain is functional but not decentralized. The bill defines a blockchain as decentralized if no individual has unilateral control over it or its usage, and no issuer or affiliated person controls 20% or more of the digital asset.
Rep. French Hill, who chairs the subcommittee on digital assets, believes FIT21 is a significant piece of digital asset legislation that could drive investment and innovation in financial services and beyond. The bill has gained support from former President Donald Trump and his advisors, as well as 60 digital-asset organizations and companies, including major players like Coinbase, Kraken, and Andreessen Horowitz. While the bill is expected to pass in the House, its fate in the Senate remains uncertain, with Rep. McHenry suggesting that support from Democrats during the House vote could impact the Senate’s decision.
The anticipated House vote on FIT21 comes on the heels of the U.S. Senate overturning an SEC crypto accounting policy, Staff Accounting Bulletin (SAB) 121, which could have substantial capital implications for banks and financial institutions holding customers’ cryptocurrencies on their balance sheets. President Joe Biden has stated his intention to veto the effort. The bill’s supporters see it as a critical step towards establishing a federal regulatory framework for digital assets in the U.S., but its success in the Senate will depend on the level of bipartisan support it receives. With the potential retirement of House Financial Services Committee Chair Patrick McHenry, the future of digital asset regulation in the U.S. hangs in the balance with the fate of the FIT21 bill.
