Is the FIT Act the most well-designed crypto bill to make its way to Congress? ⚖️
U.S. crypto regulations
Unlike the European Union, which passed the Markets in Crypto-Assets (MiCa) regulation in 2023, the U.S. still does not have clear regulation for crypto assets. This regulatory lag persists even though U.S.-based companies continue to lead in the crypto industry. Other than the UE, many other countries at the forefront of these developments – such as the UAE, Switzerland, Singapore, Hong Kong, and the United Kingdom – have also already passed numerous regulations, allowing crypto companies to operate within a stable legal framework.
In this context, numerous legal actions have been brought by the Securities and Exchange Commission (SEC) against crypto companies, including industry behemoths like Coinbase, Binance, and Grayscale. The industry views these actions as regulation by enforcement, with no clear rules to follow to stay within the law. These protracted legal battles have not only been ineffective in preventing the numerous crypto scandals of 2022, which impacted a wide range of American consumers and businesses — and were led by American citizens, but have also frequently misdirected their focus by targeting the wrong companies, as evidenced by court defeats in cases such as SEC vs. Ripple and SEC vs. Grayscale.
The SEC's covert actions and regulations are stifling the growth of the U.S. digital asset industry, driving startups and exchanges offshore and contradicting its founding mandate. According to numerous specialists, Congress, not the SEC, should determine U.S. digital asset policy to ensure the nation remains competitive globally in the blockchain and crypto industry. Moreover, the SEC faces challenges in consistently regulating crypto assets due to the lack of a clear definition of what constitutes a "security” in this context. While the SEC aims to protect investors, overregulation and qualifying every crypto asset a security risks destabilizing markets and overstepping legislative powers.
In the meantime, a bipartisan bill has reached the Congress. The Financial Innovation and Technology for the 21st Century Act (FIT Act) is a landmark piece of legislation for the digital assets industry. It has achieved a significant milestone by being the first crypto-focused regulatory bill to be reported out of any House of Representatives or Senate committee.
Garnering bipartisan support, the FIT Act acknowledges the importance of the crypto industry and signifies Congress's intent to establish an appropriate regulatory framework. Although the industry has faced challenges in public perception, particularly in 2022, the response from Congress suggests a growing understanding of the significance of crypto assets. Collaboration between industry stakeholders and policymakers is essential for crafting regulations that promote innovation while ensuring consumer protection.
The 212-page bill aims to create a crucial regulatory framework for the digital asset sector. It seeks to introduce new regulations for digital asset exchanges and provide clear guidelines for the roles of the Commodity Futures Trading Commission (CFTC) and the SEC in overseeing crypto markets.
The bill tackles key areas including: self-custody rights for consumers, exemption from securities laws for digital assets issuers, criteria for decentralization in digital assets and blockchain technology, guidelines for banking institutions in custody activities, the regulation of stablecoins, harmonization with international regulatory frameworks, and the certification process for digital assets.
After gaining approval from the House of Representatives' Financial Services and Agriculture committees, the FIT Act still awaits consideration by the full chambers of both the House of Representatives and the Senate. These discussions, that are to be held in Q3 and Q4 2023, are likely to shape the future of digital assets laws both in the U.S. and internationally.