Regulation
Will a cryptocurrency-savvy president be preferred after the FIT21 bill?
In May 2024, it passed the U.S. House of Representatives FIT21 – the Financial Innovation and Technology for the 21st Century Act – in what has been called a watershed moment for the nation’s digital asset ecosystem. Also, a recent Harris poll of 1,700 people sponsored by the issuer of the bitcoin ETF
Greyscale revealed that a staggering 77% believe a US presidential candidate should have at least an “informed perspective” on cryptocurrency.
Cryptocurrency regulation in the United States
Otherwise known as H.R. 4763, the House Financial Services Committee explained that the bill “provides the robust consumer protections and regulatory clarity needed for the digital asset ecosystem to thrive in the United States, solidifying America’s leadership of the global financial system of the future while strengthening our role of hub for innovation”.
The Commodity Futures Trading Commission (CFTC) will now preside over digital commodities and the Securities and Exchange Commission (SEC) will do the same with respect to digital assets when offered within an investment contract. In addition to this, the legislation allows for secondary market trading of digital commodities, even if initially offered as part of an investment contract. Finally, the bill imposes customer disclosure, asset protection, and operational requirements for all entities to register with the CFTC and/or the SEC.
Cryptocurrency risk concerns the SEC, CFTC, Department of Justice (DoJ), and Department of Treasury. Here’s an overview of how each organization has historically approached creating a regulatory framework.
SEC – classifies cryptocurrency companies as stock exchanges and therefore must comply with the same investor protection standards that govern publicly traded companies.
CFTC – perceives cryptocurrency as a commodity and attempts to mitigate illicit behavior conducted by market manipulators in the same way it would in derivatives markets.
DoJ – targets cryptocurrency used for criminal activities, namely extortion, fraud and money laundering, and prosecutes cryptocurrency exchanges that turn a blind eye.
Treasury Department – considers cryptocurrency based on the gains or losses experienced by individuals and how they are reported to the Internal Revenue Service (IRS) for tax purposes.
What will FIT21 do?
Introduced by Chairman Glenn ‘GT’ Thompson, Representative French Hill, Representative Dusty Johnson, Whip Tom Emmer, Representative Warren Davidson and co-sponsored by Chairman Patrick McHenry, FIT21
Request:
- Developers must disclose this accurately.
- The institutions adequately inform customers.
- Institutions will separate clients’ funds from their own.
- Institutions to reduce conflicts of interest.
To protect:
- Developers need to raise funds.
- Transactions subject to the jurisdiction of the SEC and the CFTC.
- Clear lines between SEC and CFTC.
- Registration regimes to enable institutions to legally serve customers in digital asset markets.
Can the digital asset ecosystem thrive in the United States?
According to president Patrick McHenry it is possible. Upon the bill’s passage, he said, “FIT21 provides the regulatory clarity and robust consumer protections needed for the digital asset ecosystem to thrive in the United States. The bill also ensures that America leads the financial system of the future and remains a hub for technological innovation.”
MP Dusty Johnson agrees: “Parliament approval on FIT21 is necessary to bring stability and clarity to the digital asset ecosystem. Without this bill, digital asset innovation will continue to be fraught with uncertainty. Today’s victory brings us one step closer to establishing clear rules for industry developers, so America can remain a global hub for technological and financial innovation. I hope the Senate will consider this bill soon so we can finalize this essential framework.”
Matthew Le Merle, co-founder and managing partner of Blockchain Coinvestors, spoke to Finextra and said: “Finally, our political leaders have realized that more than 50% of their electorate are digital natives and that this demographic does not only wants, but relies on digital ways of leading their lives. They will vote for those who agree with them.
“Digital natives are pro-cryptocurrency, extremely frustrated by traditional high costs and difficult access to the financial system, and angry at politicians and appointed leaders who have proven capricious, arbitrary, in some cases seemingly criminal, and always against innovation and digital progress. All of Warren’s anti-crypto armies have bullseyes painted on their foreheads, now and forever.
“FIT 21 is the United States’ response to the reality that nearly every other financial center in the world is now ahead of the United States in the digitalization of finance and trade. It’s time to eliminate the Luddites and put the United States in a position of leadership.”
Will cryptocurrency regulation become a partisan issue?
As reported by CoinDesk, 33% revealed that digital assets will be taken into consideration when deciding which candidate to support. Beyond that, the report concluded that 47% believe cryptocurrencies have a place in their investment portfolios. Zach Pandl, head of research at Grayscale, said: “American voters across the political spectrum are likely indicating greater interest in investing in crypto assets and supporting candidates with expertise in emerging technologies.”
The announcement of Donald J. Trump’s nomination also made headlines in May countryside has begun accepting cryptocurrency donations, following up on his earlier promise to become the first major party candidate to embrace bitcoin, ether and other digital currencies. DonaldJTrump.com released a statement mentioning how the former president “reduced regulations and supported innovation in financial technology, while Democrats, like Biden and his official surrogate Elizabeth Warren, continue to believe that only the government has the answers to how our nation leads the world.”
Implying that regulation does not foster innovation, the statement goes on to reference Senator Elizabeth Warren’s plan to establish an “anti-cryptocurrency army.” Earlier this month, at a U.S. Senate Armed Services Committee hearing, she discussed the “threat posed by inadequate regulation of cryptocurrencies, including the inadvertent financing of rogue nations.”
Senator Warren went on to say that “without adequate anti-money laundering regulations, bad actors are using cryptocurrencies to evade U.S. sanctions, and that these actors earn hundreds of millions of dollars each year by acting as intermediaries in the growing crypto ecosystem.”