US House of Representatives votes in favor of pro-crypto regulation

The US House of Representatives today voted on H.R. 4763 or the "Financial Innovation and Technology for the 21st Century Act" (FIT21). The MPs voted 278 to 136 in favor of the bill, which is considered crypto-friendly. 70 Democrats, who are usually rather hostile towards Bitcoin and cryptocurrencies, voted in favor of FIT21.

FIT21 must now be passed by the Senate and then signed into law by President Biden before it can come into force. The Biden administration has already spoken out today, stating that it is against FIT21 in its current form, but is open to "ensuring a balanced regulatory framework for digital assets".

Specifically, FIT21 is about the responsibilities of the respective supervisory authorities for cryptocurrencies. Currently, responsibility for Bitcoin and Co. lies primarily with the US Securities and Exchange Commission (SEC). Under the proposed bill, cryptocurrencies that are classified as commodities or goods are to be supervised by the Commodity Futures Trading Commission (CFTC).

In the bill, a blockchain is to be classified as decentralized if, "in addition to other requirements, no individual has unilateral authority to control the blockchain or its use and no issuer or affiliated person controls 20% or more of the digital asset or its voting power."

In general, the CFTC is more responsible for serving institutional investors, while the SEC focuses on protecting retail investors.

The bill was met with strong political support and members of Congress emphasized the importance of FIT21.

FIT21 is perhaps the most significant digital asset bill in the history of Congress. In my view, passing this bill is the best way to spur further investment and innovation for financial services and beyond.
_{French Hill, Republican Congressman}

Currently, the SEC is often criticized for suing exchanges for offering unregistered securities, but has not yet published precise guidelines on which cryptocurrencies it considers to be securities. It is true that the regulator repeatedly invokes the Howey test, which states, among other things, that if the success of an asset is dependent on the efforts of a particular group, it is not a commodity. At the same time, however, the SEC, led by Gary Gensler, has not yet managed to clearly classify the cryptocurrency Ethereum, which is backed by the Ethereum Foundation, which centrally develops ETH and pushes through updates, as a security.

Even if the distinction in the draft bill would probably classify cryptocurrencies as decentralized, which they certainly are not, it would provide more regulatory certainty. The crypto industry, which profits from the sale of so-called altcoins to private investors, backs FIT21 accordingly. The market therefore sees the law as positive for the entire sector, as the SEC is generally considered to be hostile to Bitcoin and the like.

The argument against FIT21, which tends to come from the Democrats, is that looser regulation in this area would harm small investors or even make competition for the US dollar more difficult.

It creates a competitor for the US dollar.
_{Brad Sherman, Democratic Congressman}

SEC Chairman Gary Gensler also criticized the bill. According to him, it would increase the risk of regulatory loopholes.

Secondly, the bill allows issuers of crypto investment contracts to self-certify that their products are a "decentralized" system and then be considered a special class of "digital commodity" and thus not subject to SEC oversight.
_{Gary Gensler in a statement}

Even though responsibility for Bitcoin would then go to the CFTC, which is considered to be more crypto-friendly, FIT21 is problematic from a Bitcoiner's point of view, as it would presumably classify cryptocurrencies as commodities, which they probably are not. Bitcoin advocates have been criticizing for years that a large proportion of crypto projects deceive investors by suggesting that they are decentralized.

The Biden administration's statement on FIT21 states that the bill "would impair the regulatory structure for digital assets in the United States" and in its current form "does not provide sufficient protection for consumers and investors".

However, the White House has indicated a willingness to work with Congress to craft legislation that creates a more crypto-friendly framework.

The administration looks forward to continuing to work with Congress to craft digital asset legislation that includes appropriate guardrails for consumers and investors while creating the necessary conditions for innovation, and more time will be needed for this collaboration.
_{From the statement}

Michael Saylor, the founder of Bitcoin-focused company MicroStrategy, posted on 𝕏 the Biden administration's statement, noting that a consensus is emerging for regulation that is positive for the U.S., Bitcoin and the crypto industry.

Just a few days ago, a resolution was passed by the House of Representatives and subsequently also by a large majority in the Senate, which would ensure more Bitcoin and crypto-friendly banking regulation. As a result of H.J. Res. 109, banks would no longer have to recognize digital assets that they hold for their customers on their own balance sheets and hold capital for them - Blocktrainer.de reported.

President Biden had previously announced that he would veto the bill, which caused displeasure not only in the Bitcoin community but also in politics. Meanwhile, Trump is using cryptocurrencies as a campaign issue for himself and is even accepting donations in Bitcoin and Co. There is currently a lot going on on the political front in light of the upcoming US presidential election in November - and the regulation of cryptocurrencies is increasingly taking center stage.

It remains to be seen whether the Biden administration will change course and sign H.J. Res. 109 as well as FIT21 - if the Senate votes in favor. The current statement, in which Biden expressed his support for appropriate and open regulation in the market, appears to be a small attempt at rapprochement with the crypto community, which should not be underestimated.

Should FIT21 actually come into force as law in its current form - which does not look likely at present - it will be interesting to see what impact the new responsibilities will have on the Bitcoin and crypto market. In general, it remains to be seen what will change in the regulatory landscape surrounding Bitcoin and Co. in the coming months.