Is FIT21 really the legislation the crypto industry needs?

Author: Daniel Kuhn Source: coindesk Translation: Shan Ouba, Golden Finance

While many industry insiders cheered the passage of the 21st Century Financial Innovation and Technology Act (FIT21) yesterday, many others raised criticisms and concerns.

On Wednesday, the House of Representatives passed the highly anticipated FIT21 bill by 279 votes to 136, which was seen as a major victory for the crypto industry as it was the biggest progress made by any crypto-related legislation in the United States to date. The bill, which was supported by a majority of Republicans and 71 Democrats, will now be submitted to the Senate for deliberation—although it may not be voted on this year.

If passed, the bill would establish a regulatory framework for digital assets, helping to define whether a token is a security or a commodity. While the bill is seen as increasing oversight of cryptocurrencies by the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC) will likely still play a major role in regulating the industry.

While many see the bill as a turning point for the U.S. crypto space, not everyone thinks it will pan out as expected.

“It doesn’t really change the institutions; the SEC still has enormous power. It provides a dual regulatory mechanism that divides power between the SEC and the CFTC. It does that by giving the CFTC unprecedented power — oversight of spot commodity markets,” crypto law expert Gabriel Shapiro said on X. “We’re really getting carried away with this FIT21.”

“There’s never been a regulated spot commodity market before… We’re just handing that power over to the CFTC and hoping they’re not some crazy fascist like Gary (but he used to be the head of the CFTC as well),” he added.

In other words, the bill essentially gives the government approval for activities that the industry is already doing without permission and potentially sets up an agency to intervene in an otherwise free and open market.

Similar sentiments were expressed by Stephen Palley, another leading legal expert in the crypto space, who said he “doesn’t like [the bill] at all.”

“It unnecessarily creates more jurisdiction for the CFTC over spot markets, sets up a walled garden for incumbents, etc. And yet you fools keep asking for new laws,” added Palley, a partner at Brown Rudnick.

Somewhat ironically, Shapiro and Palley’s criticisms coincide with those of Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee, who called it one of the worst bills she’s ever seen. In addition to potentially stretching the CFTC’s resources (the CFTC has only about 700 employees, while the SEC has 4,500), the bill could also undermine other legislative efforts, such as the stablecoin bill that Waters is working on with House Financial Services Committee Chairman Patrick McHenry (R-N.C.).

Let me tell you a secret that one of the big crypto companies doesn’t want you to know: Even in this bill, the CFTC doesn’t get enough power to regulate cryptocurrencies, Waters said.

Similarly, SEC Chairman Gary Gensler said the effort would create more confusion and regulatory gaps rather than close them. Gensler has said for years that the law is clear and that there shouldn’t be specific rules for cryptocurrencies.

Still, many in the crypto industry saw the bipartisan vote as a symbolic vote for cryptocurrencies themselves, and perhaps a harbinger of a better future. The move comes just days after the House and Senate voted to repeal a controversial SEC accounting rule, itself seen as a sign that sanity will eventually prevail.

If there is a silver lining, many experts think FIT21 may be nipped in the bud. TD Cowen, for example, said a few weeks ago that the bill has "zero chance of becoming law in this Congress." So maybe this really is a psyop worth celebrating?