- Crypto regulation draft law passed on a bipartisan vote in the US House.
- The FIT21 bill promises to give commodities regulators more oversight over digital assets.
- The bill may not pass the next phase in the Senate.
- President Joe Biden doesn't support the bill but said he wouldn't veto.
The US House of Representatives voted to pass a landmark crypto bill as digital assets become a political football mere months ahead of the presidential election.
The Republican-led Financial Innovation and Technology for the 21st Century Act, known as the FIT21 Act, passed with a bipartisan vote of 279 in favour and 136 in opposition.
Notably, 71 Democrats supported the bill, including former House Speaker Nancy Pelosi. Another 133 voted in opposition.
Among Republicans, only three voted in opposition. Another 208 supported the bill.
FIT21 promises to set clear rules for digital assets long sought by the crypto industry.
Hours before the vote, the Biden administration said it was against the bill, but didn’t threaten a veto — a relief for the industry.
The bill would end the “food fight for control” of crypto being fought between the Securities and Exchange Commission and the Commodity Futures Trading Commission, said Republican Rep. Patrick McHenry of North Carolina, co-sponsor of the bill and chairman of the House Financial Services Committee.
“This is the biggest moment in crypto policy and legislating in United States history thus far,” Rashan Colbert, head of policy at open-source software developer and decentralised trading platform dYdX Trading, told DL News.
Senate challenge ahead
The FIT21 bill will next need to make its way through the Senate. Looming elections mean that priorities may shift.
“There’s a decent chance that progress stops after this vote, but that doesn’t mean that this is a useless exercise,” said Colbert, a former US Senate staffer.
The progress is important symbolically, Colbert said, and it shows the political will to regulate the digital assets market. It also creates a reference point for a bipartisan agreement on how to regulate crypto.
And even if the bill doesn’t pass in its current form, its provisions could make their way into other laws.
What’s in the bill
The bill is tailored for digital assets and offers an unprecedented framework for the industry. It passed out of the House Financial Services and Agriculture Committees with bipartisan support in July.
FIT21 sets up definitions for crypto assets, and divides responsibility between the Commodity Futures Trading Commission and Securities and Exchange Commission.
The rules would grant the CFTC, which is considered friendlier to the industry, more jurisdiction of the sector. Definitions determine whether an asset would be subject to SEC or CFTC oversight.
Decentralised finance is outside of the bill’s purview.
The rules would provide an “enhanced level of comfort knowing that we have explicit authority to keep doing what we’re doing, which is really all we want at the moment,” Colbert said.
The vote comes on the heels of another political win for crypto. Last week, the US House and Senate voted to repeal controversial accounting guidance from the SEC, called SAB121.
At the same time, the industry is anticipating regulators’ approval of spot Ethereum exchange-traded funds.
More backlash
The White House wrote in a brief on Wednesday that the bill “in its current form lacks sufficient protections for consumers and investors who engage in certain digital asset transactions.”
But, notably, the White House said it will work on developing a regulatory framework for digital assets with Congress.
Democrat Rep. Maxine Waters of California has called FIT21 a “wish list of big crypto and is undeserving of any of our support.”
The bill’s impact isn’t limited to crypto, Waters said on Wednesday.
FIT21 would move crypto as well as some traditional securities from SEC oversight into a “regulatory no-man’s land, with no primary regulator,” she said. She called it the “worst, most harmful proposal I have seen in a long time” and predicted a recession if it passed.
So did Massachusetts Democrat Stephen Lynch, who called it a “radical rewrite of the securities laws of this country.”
As crypto and traditional financial markets start to merge, he predicted that volatility in the crypto market would lead to catastrophe in the traditional financial market.
“This will cause havoc in our financial markets, eventually,” Lynch said.
While Wednesday’s comments also fell along party lines — with Republicans supporting the bill and Democrats urging their colleagues to vote “Nay” — several Democrats voiced their support.
Rep. Wiley Nickel, a Democrat from North Carolina, said the US was “relying on a 90-year-old securities law, written before the internet was even invented.”
“We can’t wait for the next FTX to take action,” he added.
SEC Chair Gary Gensler, considered a foe of the industry, said that the bill poses a risk to markets and investors.
FIT 21 would “undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk,” Gensler said in a statement on Wednesday.
The SEC has charged key players in the industry, including ConsenSys, Coinbase, Kraken, and Robinhood Market’s crypto businesses, with securities violations.
Industry experts say that SEC requirements aren’t applicable to or designed for digital asset issuers.
“For far too long, the US digital asset ecosystem has been plagued by regulatory uncertainty that has stifled innovation and left consumers unprotected,” McHenry said in a statement earlier this month.
Industry support
“The absence of clear rules leads to confusion in the marketplace for companies – and leaves users and consumers unprotected,” the Blockchain Association wrote in a letter to lawmakers in the Senate on Monday.
“This lack of clarity impedes innovation and hamstrings companies, harming America’s standing in the global technology race.”
In a statement after the vote, Blockchain Association CEO Kristin Smith called the bill’s passage “a watershed moment and badge of Congressional validation for the crypto industry in the United States.”
Last week, dozens of crypto firms — including Coinbase, Andreessen Horowitz, and Kraken — signed an industry letter organised by the Crypto Council for Innovation in support of FIT21.
“The US lags behind other major jurisdictions in developing a regulatory framework for digital assets,” the letter said, adding that American innovators may migrate elsewhere.
“It is crucial for the US to maintain its leadership in financial innovation.”
McHenry echoed the sentiment Wednesday.
“We’re falling behind Europe,” he said. “This bill catches [us] up so that we do not lose out on innovation policy to the Europeans, to the folks in the UK, to Singapore, to Japan, to Hong Kong.”
Update, May 22: This story was updated to include the partisan split of Congress’ vote for FIT21 and a statement from Blockchain Association CEO Kristin Smith.
Inbar Preiss is DL News’ regulation correspondent. Contact the author at inbar@dlnews.com. Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.