Key Points of FIT21 Legislation and Potential Impact

The U.S. House of Representatives made history on May 22, 2024, by passing H.R. 4763, also known as the Financial Innovation and Technology for the 21st Century Act (FIT21). This landmark legislation marks the first major cryptocurrency bill to clear one of the chambers of Congress with bipartisan support.

FIT21 aims to establish safeguards, comprehensive customer disclosure requirements, and operational guidelines for digital assets. If enacted, the bill would grant regulatory jurisdiction to the U.S. Securities and Exchange Commission (SEC) over restricted digital assets and to the Commodity Futures Trading Commission (CFTC) over digital commodities. The bill distinguishes digital commodities from restricted digital assets based on criteria such as decentralization and functionality.

Under FIT21, a decentralized blockchain system is defined as one where no single entity has unilateral control over the network, and certain ownership and issuance criteria are met. The bill also outlines a certification process for blockchain systems to be recognized as decentralized by the SEC.

Once a blockchain system is certified as decentralized, the related digital asset falls under the definition of a digital commodity and is subject to regulation by the CFTC. Digital assets held by issuers or related parties are excluded from this definition and remain under SEC regulation.

In addition to regulating digital assets, FIT21 proposes amendments to the Securities Act of 1933 to provide processes for offering and selling digital asset units and introduces new SEC oversight for digital asset brokers, dealers, and trading systems.

The potential impact of FIT21 could lead to a clearer regulatory framework for the U.S. digital asset market, fostering innovation while enhancing investor protections. By differentiating between commodities and securities, the bill aims to address regulatory uncertainties in the cryptocurrency industry and position the U.S. as a leader in financial technology regulation.

While critics have raised concerns about the bill’s efficacy, FIT21 represents a crucial first step in the Congressional dialogue on digital token regulation. The Biden Administration has expressed willingness to collaborate on cryptocurrency regulation, signaling a bipartisan effort towards comprehensive legislation.

As FIT21 moves to the Senate for consideration, the bill’s passage in the House underscores the growing bipartisan consensus on the need for clear and comprehensive cryptocurrency legislation. The Senate has yet to schedule discussions or amendments to the bill, but the momentum behind FIT21 suggests a significant shift in the regulatory landscape for digital assets in the United States.