Regulation
Is Washington getting closer to cryptocurrencies? Top US policy and regulatory trends to watch
The growing political support and successful bipartisan vote for the cryptocurrency-focused FIT21 regulation could mark a new era in cryptocurrency regulation in the United States.
Over the past two years, the cryptocurrency business in the United States has gone through a difficult period. The collapse of FTX and the resulting crackdowns by federal and state agencies have painted a bleak picture for the industry. Numerous companies, such as Binance US, Coinbase, and Kraken, have been charged and fined by the SEC. Former Binance CEO Changpeng “CZ” Zhao even received a four-month prison sentence. Others, like Nexo, have decided to exit the US market altogether.
However, as the presidential election approaches and the cryptocurrency market enters a new phase of growth, the mood is starting to change.
Donald Trump is one of the most visible signs of this transformation. The eccentric former president continues his crypto crusade, meeting Tuesday with Nasdaq-listed bitcoin mining firms CleanSpark Inc. and Riot Platforms. Judging by the subsequent post on the social media platform Truth Social, the meeting went well. “Bitcoin mining could be our last line of defense against a CBDC. Biden’s hatred of Bitcoin only helps China, Russia, and the radical communist left. We want all remaining Bitcoins to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT,” Trump wrote.
The new pro-crypto trend is also starting to be noticed on the Hill. The House of Representatives recently provided a pleasant surprise by approving a bill that many define as “historic”, FIT21.
The importance of FIT21
The Financial Innovation and Technology for the 21st Century Act (FIT21), passed by a bipartisan vote of 279-136, became the first cryptocurrency-focused legislation to receive approval from both houses of Congress. 71 Democrats joined 208 Republicans in this vote, demonstrating that the crypto issue can be truly bipartisan and not exclusively the prerogative of Republicans.
If FIT21 passes the Senate and becomes law, it will finally establish a framework that clearly defines which cryptoassets are classified as securities (which will be regulated by the SEC) and which are considered commodities (which will be regulated by the CFTC). Currently, the SEC claims authority over all cryptoassets and regularly sues crypto companies for issuing or trading “unregistered securities.” Such behavior is considered one of the biggest problems hindering the development of the cryptocurrency industry in the United States, and FIT21 could help change this.
The legislation proposes to classify cryptoassets based on the decentralization of the underlying network or project: tokens from decentralized projects will be considered commodities, while centralized ones will be considered securities. One potential loophole for FIT21 is that the SEC will remain the judge of decentralization, but with clear guidelines and the ability to openly challenge its decisions, it would be easier for crypto firms to maintain their position. The good thing about FIT21 is that it allows you to accommodate the changing nature of cryptoassets. A coin issued on a new blockchain, not yet sufficiently decentralized, may initially be considered a security, but as the blockchain matures and decentralizes, it could become a commodity.
SEC vs. Uniswap
SEC Chairman Gary Gensler is, of course, vehemently against FIT21, which threatens to reduce its authority and force the Commission to change its methods. This would also put an end to some of the SEC’s current cases, such as the attack on Uniswap Labs, the developer of the world’s largest decentralized exchange (DEX).
In April, the SEC issued a notice to Uniswap in Wells, warning the company that it had identified potential violations of U.S. securities law, namely being an unregistered securities exchange and its interface and portfolio being unregistered securities brokers . Last month, Uniswap published a 43-page document arguing that the protocol does not meet the definition of an exchange and is therefore not subject to SEC regulation.
In fact, a DEX is simply a set of smart contracts deployed on a blockchain and functioning in an automated manner. Uniswap Labs only controls the DEX interface (web page) but does not have access to its users’ funds at any time.
As lawyers on both sides prepare for battle, the political climate changes. So far, Gary Gensler has had President Biden’s support. However, if Donald Trump continues to speak openly about cryptocurrencies, the current president may decide to soften his position, and the SEC may follow suit. The Uniswap case could be a litmus test for this change in attitude.
The United States is still far from comprehensive regulation of cryptocurrencies, but if this nascent crypto-friendly trend continues, the country will solidify its role as a leader in the industry.