US legislators have taken a major step forward in how the country regulates cryptocurrency, with the House of Representatives overwhelmingly approving the Financial Innovation and Technology for the 21st Century Act (FIT21).

The legislation was approved by the House yesterday with votes of 279 in favour, consisting of 208 Republicans and 71 Democrats, and 136 against, of which three were Republicans and 133 were Democrats.

Democrats cross the floor for crypto

FIT21 was introduced to the House of Representatives by Glenn Thompson, a Republican representative from Pennsylvania and a member of the House Financial Services Committee.

The fact the Bill is Republican-introduced is not the only reason the 71 Democratic votes come as a surprise – the added factor to consider is that US President Joe Biden is not entirely in favour of the legislation.

Both Biden and Gary Gensler, Chair of the Securities and Exchange Commission (SEC), have criticised the legislation, arguing similar talking points. Countering, the bill’s proponents believe it is necessary to govern a growing and developing segment of the US economy, that being digital assets.

Patrick McHenry, Republican Party representative from North Carolina and Chairman of the House Financial Services Committee, said: “Today, the House took a historic step by passing FIT21 with broad, bipartisan support. FIT21 provides the regulatory clarity and robust consumer protections necessary for the digital asset ecosystem to thrive in the United States. 

“The bill also ensures America leads the financial system of the future and remains a hub for technological innovation. I appreciate the partnership of Chairman Thompson, as well as Congressman French Hill and Dusty Johnson. 

“This landmark initiative would not be possible without their steadfast leadership. The overwhelming support for FIT21 in the House should serve as a wakeup call to the Senate and this Administration. They must come to the table to ensure the Americans who engage with digital assets can do so safely.”

FIT21 has three core objectives – protecting customers by strengthening transparency and accountability with market participants, strengthening the market by protecting digital asset projects and protecting digital asset customer-serving institutions.

Should it pass through Congress, the bill will give the Commodity Futures Trading Commission (CFTC) jurisdiction over digital commodities. It also seeks to clarify the SEC’s jurisdiction over digital assets as part of an investment contract.

Another regulatory objective of the legislation is to enable secondary market trading of digital assets, but only if they were initially offered as part of an investment contract.

On consumer protection, FIT21 seeks to provide accurate information relating to digital asset operations, ownership and structure to developers. Requirements will also come in for digital asset customer-serving institutions, such as to provide disclosures to customers, segregate customer funds from their own and reduce conflicts of interest through registration.

Biden and Gensler share uncertainties

These provisions are not enough for the Biden administration or the SEC, however. In a statement, the White House argued that FIT21 “lacks sufficient protections for consumers and investors who engage in certain digital asset transactions” in its current form.

However, Biden has clarified that he does not intend to veto the legislation, but instead hopes to work with legislators to further refine the BIll into a form the federal government is more agreeable to.

The statement read: “The Administration is eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, which will promote the responsible development of digital assets and payment innovation and help reinforce United States leadership in the global financial system.”

Gensler, meanwhile, is no fan of the crypto sector, having been a long-standing opponent of the Spot Bitcoin ETF until its eventual approval by the SEC earlier this year. In a statement following FIT21’s approval by the House, Gensler accused crypto companies of being unwilling to comply with US rules around securities registration. 

He added that these firms have been “variously arguing that the laws do not apply to them or that a new set of rules should be created and retroactively applied to them to excuse their past conduct”.

“Widespread noncompliance has resulted in widespread fraud, bankruptcies, failures, and misconduct,” he continued. “As a result of criminal charges and convictions, some of the best-known leaders in the crypto industry are now in prison, awaiting sentencing, or subject to extradition back to the United States.”

Gensler went on to criticise a range of FIT21 proposals, including the notion of removing blockchain-recorded investment contracts from the statutory definition of securities and allowing crypto investment contract issuers to self-certify that products are decentralised.

“The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or because the rules are unclear,” Gensler concluded.

“It’s because many players in the crypto industry don’t play by the rules. We should make the policy choice to protect the investing public over facilitating business models of noncompliant firms.”

Outside of politics and regulation, the crypto industry was understandably delighted with the announcement. Stand with Crypto, a US crypto and blockchain trade body, celebrated the House approval as an ‘undeniable win’ on X.

FIT21 will now move on to the Senate for debate, possible further amendment and ultimate rejection or approval by the 100 members of the US Congress’ upper house. If approved by the Senate, it will be sent to President Biden for final approval.

The Bill’s passage through Congress occurs within the context of the looming US presidential election, scheduled for November this year. Biden has confirmed that he will stand for re-election, and it is anticipated that former President Donald Trump will secure the Republican nomination to face him.

In contrast to Biden, Trump is more welcoming of crypto and digital assets – although not Central Bank Digital Currencies (CBDCs) which he has vowed to shut down if elected. 

As election campaigning gets underway, crypto stakeholders have sought to make their voices heard. The abovementioned Stand With Crypto has set up a Political Action Committee (PAC), for example.

Whilst topics like the US’ economic performance, instability in the Middle East and foreign policy towards Russia and China may loom more front-and-centre in voters’ minds, the role crypto and digital assets will play in the forthcoming political football game is hard to deny.