The U.S. House of Representatives is set to vote on the Financial Innovation and Technology for the 21st Century Act (FIT21), marking a significant shift in the regulation of the digital asset market. This bipartisan bill, co-sponsored by members of the House Financial Services and House Agriculture Committees, aims to redefine the regulatory landscape for cryptocurrencies in the United States. It is anticipated to pass with support from both parties.

FIT21 proposes to enhance the authority of the U.S. Commodity Futures Trading Commission (CFTC) over digital assets classified as commodities and establish clearer jurisdictional boundaries for the Securities and Exchange Commission (SEC). The bill provides a framework for crypto companies to determine if their assets are securities, thus identifying their primary regulator. Rep. Patrick McHenry (R-N.C.), chair of the Financial Services Committee, emphasized the momentum for this legislation, highlighting its importance following the Senate’s recent approval of a resolution overturning an SEC accounting guideline.

The bill’s passage in the House seems likely, with several Democrats joining the majority of Republicans in favor. However, its future in the Senate is uncertain, and the White House has expressed opposition, though President Biden has not threatened a veto. The bill has sparked extensive debate recently.

Proponents like Rep. Jim Himes (D-Conn.) and Rep. Ro Khanna (D-Calif.) view FIT21 as a crucial advancement for the cryptocurrency industry and blockchain innovation in the U.S. They believe it provides necessary regulatory clarity and oversight. The bill includes a “5-step test” to determine if a blockchain is decentralized and mandates filing a “notice of intent to register” with relevant agencies. It aims to address conflicts of interest, impose capital requirements, and enhance custody standards.

Despite these measures, the bill faces criticism, particularly from Rep. Maxine Waters (D-Calif.), who argues it is overly deregulatory and likens it to the controversial Commodity Futures Modernization Act. Waters contends that FIT21 could create regulatory gaps, particularly regarding fraud prevention and disclosure requirements. She also highlights concerns about the bill’s broad definition of “investment contract assets,” which could allow both crypto and traditional securities to avoid rigorous oversight.

Opposition extends beyond the House Financial Services Committee, with a coalition of unions, consumer protection organizations, and academics urging House leaders to reject the bill. They argue that the crypto industry remains fraught with scams, hacks, and regulatory evasion, and that the bill could weaken existing securities laws. SEC Chair Gary Gensler also opposes the legislation, warning it might enable fraudulent schemes to escape oversight by claiming association with decentralized networks.

Supporters, including the Blockchain Association and various crypto companies, argue that clear regulations are essential to protect users and foster innovation. They warn that the lack of regulatory clarity risks leaving the U.S. behind in the global tech race. Despite these divergent views, the bill represents a pivotal moment in the ongoing debate over how best to regulate the burgeoning cryptocurrency industry.

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