Crypto Lobby Wins: House Moves to FIT21 as Democrats Ridicule Historic Regulatory Framework

Lawmakers voted Wednesday in favor of the Cryptocurrency Market Structure Act, which could have a profound impact on the U.S. regulatory environment for digital assets if it ultimately becomes law.

The bill, called the Financial Innovation and Technology for the 21st Century Act, or FIT21, was approved by the House of Representatives by a vote of 279 to 136. 208 Republican members of the House of Representatives voted in favor of the bill, and 71 Democrats also voted in favor of FIT21. All but three of the 217 Republican House members voted for FIT21, and about a third of Democrats also supported it.

The bipartisan support for FIT21 reflects a changing approach to cryptocurrencies on Capitol Hill. Just last week, a U.S. Securities and Exchange Commission (SEC) resolution rolling back cryptocurrency custody rules for banks passed both the House and Senate, receiving support from high-profile lawmakers such as Senate Majority Leader Chuck Schumer (D-NY).

The bill passed by the House on Wednesday creates a federal framework for regulating digital assets, establishing jurisdiction between the Commodity Futures Trading Commission (CFTC) and the SEC. Giving issuers the ability to self-certify assets as digital goods, among other initiatives, the bill was rejected on Wednesday by SEC Chairman Gary Gensler.

President Joe Biden was also among those who expressed dissatisfaction with the bill, who in written remarks noted the lack of sufficient investor protection. Still, Biden called for a “comprehensive and balanced regulatory framework” for digital assets in his Wednesday letter, suggesting the status quo is currently lacking.

By limiting the SEC’s regulatory authority, FIT21 grants the CFTC exclusive regulatory authority over digital asset commodities. According to the draft law, criteria for determining this status are provided based on the level of decentralization of the project, taking into account factors such as the amount of token held by a party or the susceptibility of the blockchain to the influence of one party.

Hours before the bill was brought to a vote in the House, House members debated the merits of FIT21. Among the bill’s co-sponsors, House Financial Services Committee (HSFC) Chairman Patrick McHenry (R-SC) said: “The SEC and CFTC are currently fighting for control of this asset class.”

“They have created an impossible situation in which the same companies are subject to competing and conflicting enforcement actions by two different agencies, leaving consumers and innovators behind,” he continued. “FIT21 solves this.”

However, several Democrats, including Republican Maxine Waters, criticized the bill. “This bill continues to provide key exceptions to key securities laws,” she said. She later said that crypto companies “refuse to register” and that the bill would “exonerate” them and “give them the ability to operate without regulation.”

“How can this happen?” she said.

Brad Sherman (D-Calif.) said the bill’s changes to the definition of a security would be “a dagger against the hundred trillion-dollar markets that power our economy.” He further expressed concerns that cryptocurrency users would avoid taxes or sanctions if the technology is controlled lightly.

Meanwhile, Sean Casten (D-IL) highlighted reports regarding the use of cryptocurrencies by terrorist groups and the trafficking of child sexual abuse material (CSAM). “Bad people love cryptocurrencies,” he said.

Clarification of powers between the CFTC and SEC has long been a hope in the crypto industry, as supporters have argued that existing rules are unclear. FIT21 covers several areas of cryptocurrency, including approaches to trading platforms, decentralized finance, and how developers can raise funds for projects.

The passage of FIT21 comes after years of wrangling on Capitol Hill over other cryptocurrency bills, such as measures to regulate stablecoins. Last year, House Republicans adopted subcommittee on digital assets, with the express goal of creating clearer rules for cryptocurrencies.

Introduced by McHenry as a crypto “OG,” Rep. Warren Davidson (R-OH) said cryptocurrency legislation was long overdue after six years of work on other crypto measures. Davidson said he started working on cryptocurrency rules in 2018, starting with the Token Taxonomy Act.

“For too long, we have pushed innovation and investment in digital asset projects abroad because Congress has continually failed to provide the transparency we need,” he said. “We finally have a chance to end this trend and strengthen our leadership position in this industry.”

As the bill moves through the Democrat-controlled Senate, it could face insurmountable hurdles before reaching Biden’s desk. However, cryptocurrency-friendly Sen. Cynthia Lummis (R-WY) suggested on Twitter (aka X) that lawmakers there could support FIT21 with bipartisan support.

“There are bipartisan pro-cryptocurrency majorities in both houses of Congress,” she said. “The future is very bright.”

Edited by Guillermo Jimenez and Andrew Hayward