Original author: Mary Liu
Original source: Bitpush
On the afternoon of May 22nd local time, the U.S. House of Representatives passed the Republican-led Financial Innovation and Technology for the 21st Century Act (FIT-21 Act) with 279 votes in favor and 136 votes against.
This was the first time that comprehensive crypto legislation was voted on in the House of Representatives and was supported by Democrats across party lines, with 71 Democrats voting in favor of the bill, making it the crypto industry’s most significant legislative achievement in Congress.
The next baton will be passed to the Senate, and although the prospects are unclear, it has proved that U.S. lawmakers' views on cryptocurrencies are changing and the crypto industry has taken a "big step."
SEC "steps aside", CFTC becomes the main regulator
The FIT-21 bill will clarify the regulatory boundaries of the cryptocurrency industry and grant the Commodity Futures Trading Commission (CFTC) primary jurisdiction over the industry. At the same time, the SEC's jurisdiction will be "sacrificed."
FIT-21 will create a tailored disclosure and registration system for digital asset companies. Crypto companies have long believed that the SEC’s insistence on requiring these companies to comply with the traditional disclosure system is unworkable.
Specifically, the bill would give the CFTC more authority and funding to oversee the cryptocurrency spot market and "digital commodities," especially Bitcoin. The bill also creates a process to allow secondary market trading in digital commodities that were "initially offered as part of an investment contract." The bill also contains stablecoin and anti-money laundering provisions.
“In the last 48 hours, we have seen a dramatic shift in the perception of the industry in Washington, D.C. as a result of crypto grassroots and political power,” said Ron Hammond, Director of Government Relations at the Blockchain Association. “This view of the industry appears to not only change how Congress views the industry ahead of the FIT21 vote, but has the potential to remove the regulatory roadblocks that the SEC Chairman is attempting to erect.”
Hammond added that FIT21 was “a huge turning point”.
Blocked in the Senate? Not necessarily
Most analysts and industry insiders note that while FIT21 is unlikely to be introduced in the Senate this year, the bill could lay the groundwork for the next Congress in January.
“While facing difficult Senate approval and a potential presidential veto if it proceeds to the next step, this effort marks the most significant milestone to date in establishing a much-needed comprehensive regulatory framework for the U.S. digital asset markets,” Davis Polk attorneys wrote in a letter to clients. “The mere fact that the bill was sent to the House for a vote reflects the importance that many members of Congress attach to this issue.”
But some see Wednesday’s vote as having the potential to produce a bipartisan statement that can’t be ignored.
“I don’t think we should be so pessimistic about the Senate and assume they won’t act on this before the end of the year,” an industry insider with knowledge of the congressional negotiations told MarketWatch.
One reason for optimism is that last week the House and Senate voted to overturn SEC accounting guidance that opponents said made it too expensive for financial institutions to custody crypto assets such as Bitcoin and Ethereum for clients. More than two dozen House Democrats, including New York Majority Leader Chuck Schumer, and a dozen Senate Democrats voted to overturn the rule against the wishes of the Biden administration.
President Joe Biden previously promised to veto the bill but has yet to do so.
A cryptocurrency lobbyist with ties to the Democratic Party told MarketWatch that the bill is evidence that “the Biden administration has realized it doesn’t understand the problem,” as well as the political risks of being seen as anti-crypto ahead of a tough reelection fight.
At the same time, the bill contains many provisions supported by Democrats, including expanding the CFTC’s authority to regulate cryptocurrency spot markets and exchanges, and requiring cryptocurrency intermediaries to comply with anti-money laundering requirements and the Bank Secrecy Act.
Another argument influencing some Democrats, industry insiders say, is that the current Supreme Court has been highly skeptical of financial regulators asserting new powers, and if Congress does not act now, the Supreme Court could end up deciding the future of cryptocurrency regulation.
Todd Phillips, an expert on financial regulation at the left-leaning Roosevelt Institute, made that argument in a recent brief, writing that “the cryptocurrency industry’s legal arguments are not unconvincing, and its arguments based on history and congressional intent may persuade this Court, the most conservative in nearly a century, to side with the industry.”
Powerful Democrats in Congress, including Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee, "strongly oppose" the legislation, according to a letter sent to their Democratic colleagues on Monday, but top Democrats have decided not to focus on opposing the bill, Politico reported.
“Congress should consider whether this legislation would leave loopholes to evade SEC oversight, similar to the unregulated derivatives that preceded the 2008 financial crisis,” Cantrell Dumas, director of derivatives policy at financial reform group Better Markets, said in a statement Tuesday.
“Lawmakers must also ask whether the resources provided to the CFTC in the bill are sufficient to meet the needs of an underfunded agency,” he added, echoing the concerns of many congressional Democrats. “Without appropriate funding, adding more authority to the CFTC will inevitably and seriously undermine the agency’s ability to perform the important responsibilities that all Americans rely on and benefit from.”
Convincing top Democrats, such as House Minority Leader Hakeem Jeffries of New York, to support the bill is also a priority, as Senate Banking Committee Representative Sherrod Brown, an Ohio Democrat, has said he does not support legislation on cryptocurrency market structure.
“The Senate does not typically take up House bills and then vote on them, so while the Senate may eventually be interested in considering some kind of crypto legislation, it will almost certainly not be FIT-21,” Ian Katz, financial services analyst at Capital Alpha Partners, wrote in a client note this week.
House Financial Services Committee Chairman Patrick McHenry, who will retire when his term ends in January 2025, told reporters at a briefing on Tuesday that he would "do everything we can from Congress" and said he would get bipartisan support. "My time as chairman and my tenure in Congress is coming to an end, but the policy is not," he said.
