Detailed Analysis of the FIT21 Act: Its Impact on the Crypto Industry

At the end of this month, the House of Representatives will vote on a significant bill (HR 4763), and we believe you should pay attention to this matter.

The Financial Innovation and Technology for the 21st Century Act, also known as the FIT21 Act, if passed, will provide more clarity in the regulation of cryptocurrencies in the United States, benefiting everyone in the industry. If this bill is approved, it will:

• Provide a safe and effective way for blockchain projects to launch in the U.S.;
• Clarify the boundaries between the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), specifying who regulates which activities in the cryptocurrency space and whether digital assets are securities or commodities;
• Ensure oversight of cryptocurrency exchanges and further protect U.S. consumers by implementing crypto trading rules.

Here, we will share why all of this is so important.

What Does This Bill Include?

The FIT21 Act/HR 4763 establishes a regulatory framework for the U.S. digital asset market to:

• Address the unique structural issues of digital assets;
• Provide clear and sound consumer protection measures;
• Clarify which digital assets are regulated by the CFTC and which are regulated by the SEC. This is crucial because the definitions of “commodity” and “security” have significant implications for how they are regulated.

If the blockchain or digital ledger running the digital asset is functional and decentralized, the CFTC will regulate the digital asset as a commodity.

If its related blockchain is functional but not decentralized, the SEC will regulate the digital asset as a security.

The bill defines decentralization as, among other requirements, when no one has unilateral control over the blockchain or its use, and no issuer or associated person has control or voting rights over 20% or more of the digital assets.

The bill also specifies other consumer protection requirements, such as the segregation of customer funds, lock-up periods for token insiders (to incentivize innovation rather than mere speculation), annual sales limits, and disclosure requirements.

These protections are somewhat similar to those implemented by regulators after the Great Depression in response to the boom of the 1920s and the stock market crash of 1929. Once established, these measures led to an unprecedented era of market and economic growth and innovation in the U.S.

What Is Not Included in This Bill?

Some industry insiders worry that the bill grants too much jurisdiction to the SEC due to the very high bar it sets for decentralization and the ability to reclaim any re-centralized tokens or projects. Others are concerned that the bill does not clearly delineate the boundaries of jurisdiction between the SEC and the CFTC.

However, despite its imperfections, this bill will provide the regulatory certainty the crypto industry needs to continue operating and innovating in the U.S.

Some may ask why any form of regulation is necessary at all. It is unrealistic to expect no regulation, and clearer rules are better than chaotic ones. Regulation and a clear path to corporate compliance allow innovators to build trust with the public and offer useful products while holding any bad actors more accountable.

Who Is Behind This Effort?

The FIT21 Act is a joint effort by the House Financial Services Committee (which oversees the SEC) and the House Agriculture Committee (which oversees the CFTC), with industry support. Last July, the Financial Services Committee passed the bill with support from six Democrats and all Republicans on the committee, and it was unanimously passed by the Agriculture Committee. Since then, it has continued to receive bipartisan support.

Why Now, and What Can You Do to Help?

The vote on this bill will take place in the coming weeks, representing a national referendum on cryptocurrency in the U.S.

Therefore, it is crucial to ensure that the bill passes with strong bipartisan support. Afterward, it will still need to pass in the Senate and be signed into law by the President. So, we are at a critical juncture. To do your part, we urge you to contact your local representatives through the Stand with Crypto website.

Why Is This Important?

Despite the crypto industry being over a decade old, the U.S. has yet to establish a comprehensive regulatory framework for digital assets. The current regulatory landscape is fragmented, incomplete, and lacks clarity. This regulatory uncertainty not only creates a confusing environment for innovation but also provides a breeding ground for bad actors. As we’ve seen, companies and individuals with ill intentions can easily launch products that exploit regulatory gaps.

Meanwhile, responsible actors—legitimate entrepreneurs and startups—suffer from dubious “regulation by enforcement.” This approach harms U.S. innovation, especially as other countries continue to innovate, and is detrimental to the long-term dominance of the dollar, U.S. consumers, and the overall U.S. economy.

When other jurisdictions provide suitable regulatory regimes, startup activities often move abroad. This is not an abstract concern: startups create jobs, economic value, and may evolve into the next major tech companies. For example, Amazon, Apple, Facebook, Google, Microsoft, Netflix, Nvidia, and Salesforce were all founded in the U.S., with some emerging in just the past 20 years.

Today, they not only dominate market value but also profoundly impact our daily lives. The FIT21 Act, by creating an environment that supports innovation, gives the crypto industry the same potential while avoiding a scenario where a few large tech companies monopolize the market and act as gatekeepers for the majority.

Regardless of your views on cryptocurrency, it represents more than just a financial opportunity; it signifies a shift to an important technological platform, much like how personal computers, mobile phones, and the internet transformed our world.

Although the internet is one of the most significant technological innovations in human history, it is failing today’s consumers, creators, and developers who rely on it. Blockchain, cryptocurrency, and Web3 can address this in various ways: from authenticity proof against deepfakes and identity proof against AI, to more voice and choice in social media platforms, and more inclusive payment systems, and more. But we need a conducive environment for these innovations to continue developing in the U.S.