The US House of Representatives will vote on the long-awaited Decentralization Bill, officially titled “The Financial Innovation and Technology for the 21st Century Act” (FIT21) this week. Experts believe this legislation could clarify and streamline cryptocurrency regulation for traders and investors in the US.
US Decentralization Bill Will Provide Clarity to Blockchain Projects
The US Decentralization Bill (HR 4763) is expected to be voted on on the House floor this week. Although it faces an uphill battle in the Senate and the possibility of a presidential veto, the effort represents the most important milestone in establishing a comprehensive US regulatory framework for digital assets.
JUST IN: US congress is going to vote on a bill FIT21 by the end of the month.
This bill defines decentralisation of the blockchain as “no issuer or affiliated person has control of more than 20% of the digital asset or the voting power of the asset”.
This will force… pic.twitter.com/6VKax5hVof
— SolanaFloor | Powered by Step Finance (@SolanaFloor) May 21, 2024
The bill’s organizing principle is to clearly define the regulatory responsibilities of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in regulating crypto transactions.
The division of responsibilities hinges on several factors, such as the decentralization and functionality of the digital asset’s associated blockchain system, how the asset was acquired, and the digital asset holders.
These factors determine whether a digital asset is classified as a “restricted digital asset” subject to SEC rules or a “digital commodity” under CFTC jurisdiction.
The US House of Representatives will vote on bill HR4763 by the end of the month, differentiating the following.
CFTC-regulate crypto as a commodity if its blockchain is functional and decentralized
SEC-regulate crypto as a security if its blockchain is not decentralized
— Telo News (@Telo_Official) May 21, 2024
The FIT21 seeks to regulate digital assets from their inception. Before a functional system exists, SEC-style disclosure-based regulations would apply to transactions like ICOs.
Prospective buyers would receive disclosures to assess unproven digital assets.
Meanwhile, the Blockchain Association urged a full House floor vote on the U.S. Decentralization Bill in a letter addressed to House Speaker Mike Johnson and Minority Leader Hakeem Jeffries on May 20.
1/ Today, @BlockchainAssn members sent a letter to @SpeakerJohnson and @RepJeffries in support of a floor vote for the Financial Innovation and Technology for the 21st Century Act (#FIT21).https://t.co/RhBfe9Gg5p pic.twitter.com/BUoEnoOEAD
— Blockchain Association (@BlockchainAssn) May 20, 2024
The letter, undersigned by prominent crypto firms including Ripple, Kraken, and Circle, emphasized the need for legislation that offers a framework for innovation, regulatory clarity for U.S. operators, and protection for users and consumers.
“We, the undersigned, write today to express our support for a floor vote for H.R. 4763, the Financial Innovation and Technology for the 21st Century Act (FIT21),” the letter stated. “The undersigned represent the diverse blockchain and digital asset industry – including technology startups, small business service companies, infrastructure providers, regulated institutions, and investors – working together to support a pro-innovation national policy and regulatory framework.”
US Decentralization Bill Grant the Issuance of US SEC Certification
In addition to dividing regulatory responsibilities, the US Decentralization Bill establishes a certification process for blockchain systems to be treated as decentralized entities. Once certified, the digital asset becomes a “digital commodity,” exempt from SEC regulation.
At this point, the regulatory framework shifts to the CFTC-style conduct standards. As a digital commodity, non-insiders can trade the digital asset freely on CFTC-regulated digital commodity exchanges and through CFTC-regulated spot transactions. Insiders also gain more flexibility in transacting in the digital commodity, though certain restrictions may still apply to specific insiders, such as issuers.
If the FIT21 Act passes, it will bring much-needed clarity to crypto regulations in the US. The SEC has been enforcing rules without clear guidelines, causing uncertainty and tension in the sector. The financial watchdog has gone up against every major crypto player in the country, alleging unlicensed operations and unregistered securities offerings.
Recall that the SEC filed a lawsuit against Coinbase in June 2023 for allegedly operating as an unregistered securities exchange, broker, and clearing agency. The exchange had, in turn, sued the SEC for crypto rulemaking refusal due to its constant crackdown on crypto firms. This also resulted in Coinbase Chief Legal Officer Paul Grewal rallying major exchanges to query SEC’s actions, which can have serious implications for the crypto industry.
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