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News related to the regulation of the crypto market is making headlines, especially after the U.S. Securities and Exchange Commission approved the spot Ethereum ETFs, as we announced in this tweet:
We also recently explained it in detail in this article.
Another significant and recent milestone in this trend occurred on May 22nd with the approval of the FIT21, also known as the Financial Innovation and Technology for the 21st Century Act. Let’s discuss it briefly.
What is FIT21?
The FIT21 bill, also known as HR 4763 or the Financial Innovation and Technology for the 21st Century Act, aims to expand the powers and funding of the Commodity Futures Trading Commission (CFTC) to oversee spot markets for cryptocurrencies and “digital commodities” like Bitcoin (BTC). The recent passage of this bill by the U.S. House of Representatives marks a significant milestone in the regulation of cryptocurrencies.
Regulating Trading and Security
- FIT21 aims to ensure that the United States continues to lead the future financial system and remains a hub for technological innovation. The bill intends to provide consumer protection and regulatory certainty, key points highlighted in the official statement from the House of Representatives following the vote. This progress in Congress has become a historic event, as similar bills have not advanced this far in the legislative process.
- FIT21 addresses a longstanding dispute over the classification of cryptocurrencies. The bill clearly defines the necessary concepts to determine whether a crypto asset is a security or a commodity. This resolves contradictions between the CFTC and the Securities and Exchange Commission (SEC), establishing a clearer framework for regulating the sector.
- The bill also includes provisions to allow the secondary market trading of cryptocurrencies after their initial offering as part of an investment contract. Additionally, it contains regulations on stablecoins and anti-money laundering measures to protect investors. It also establishes a tailored disclosure and registration regime for digital asset companies, allowing a form of self-certification of assets as digital commodities, based on the project’s level of decentralization, which indirectly impacts the DeFi market.
CFTC and SEC Jurisdictions
- One of the most notable features of FIT21 is the designation of the CFTC as the primary regulatory body for cryptocurrencies, granting it more authority than the SEC. This aims to end the debate over regulatory jurisdictions between the CFTC and the SEC, a major demand within the crypto industry.
- Clear delineation of responsibilities is intended to reduce lawsuits and accusations against bitcoin companies by the SEC, which have been a source of complaints due to its insistence on applying outdated regulations to the crypto ecosystem.
- The House vote, with notable bipartisan support, reflects the growing role of cryptocurrencies in current politics. More than 5% of the U.S. population owns cryptocurrencies, underscoring the importance of this issue in the upcoming presidential elections.
Outlook and Challenges
- Despite its approval in the House, the future of FIT21 in the Senate is uncertain, as there is no equivalent bill and support is still unclear. The Biden administration opposes the bill, arguing that it lacks adequate protections for investors and consumers. Additionally, figures like House Financial Services Committee Vice Chair Maxine Waters and SEC Chair Gary Gensler have expressed strong opposition.
- In conclusion, FIT21 represents a significant step towards cryptocurrency regulation in the United States, with the potential to establish a clear regulatory framework and foster technological innovation. As the bill moves to the Senate, its future will depend on lawmakers’ ability to reach a consensus and address concerns about consumer protection and market integrity.
Commodities and securities, two controversial terms
- In the realm of crypto, commodities and securities are distinct financial assets, although defining its true nature remains controversial in relation to the regulation of crypto-assets. Cryptocurrency commodities encompass digital assets like Bitcoin or Ethereum, traded on specialized exchanges and influenced by market demand.
- Conversely, cryptocurrency securities represent ownership or debt in blockchain-based projects, traded in crypto markets based on project performance and investor sentiment.
- Some financial products, such as crypto-based securities, merge elements of both, tracking cryptocurrency prices or portfolios without direct ownership. While cryptocurrencies and securities are separate, hybrid financial instruments offer investors diverse opportunities within the evolving crypto landscape.
We will keep you informed of all the important news affecting the constantly innovating and changing crypto and DeFi market. Remember that you can join our huge community on Telegram, and follow us on our social networks on Twitter and Instagram.
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