Can Crypto’s Political Tailwinds Drive True Digital Asset Utility?
In the Bahamas, convicted cryptocurrency criminal Sam Bankman-Fried’s one-time penthouse is up for sale.
Meanwhile, in the United States, the House of Representatives passed the Financial Innovation and Technology for the 21st Century (FIT21) Act (H.R. 4763) Wednesday (May 22), the first step in establishing a comprehensive federal framework that both ensures regulatory certainty for digital assets and provides key protections for consumers.
The juxtaposition of the two news items underscores just how far the Web3 landscape has shifted in the past two years. While Bankman-Fried, the former billionaire co-founder and CEO of the imploded FTX crypto exchange, is facing decades in prison, a landmark piece of crypto legislation is, in turn, facing a decisive upcoming Senate vote.
The bill, which was first voted to the House floor in 2023, passed the House by a vote of 279 to 136, with 208 Republicans and 71 Democrats voting to approve it. Its bipartisan passage shows how far the embattled crypto sector has come, from a regulatory perspective, in America.
But its passage wasn’t without controversy. Hours before the vote was held, Securities and Exchange Commission Chair Gary Gensler said the cryptocurrency legislation would undermine his agency’s work. The legislation, Gensler stressed, “would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.”
The President Joe Biden administration itself also issued a policy statement opposing passage of FIT21 Wednesday, stating that “H.R. 4763 in its current form lacks sufficient protections for consumers and investors who engage in certain digital asset transactions.”
Still, the bill passed, providing a glimmer of hope to an industry that has long bemoaned the lack of regulatory clarity around its operations in the U.S.
Next up, the crypto industry will need to prove its usability and utility across payments and commerce as it seeks continued inroads into the traditional financial landscape and greater mainstream acceptance.
See also: Making Sense of the State of Crypto in 2024
Fostering Web3 Innovation in America
To date, the U.S. digital asset ecosystem has been mired by uncertainty and regulation by enforcement. The ongoing opacity as it relates to crypto’s status in the U.S. has resulted in many firms choosing to take their business elsewhere.
“FIT21 provides the regulatory clarity and robust consumer protections necessary for the digital asset ecosystem to thrive in the United States,” House Financial Services Committee Chairman Patrick McHenry said in a statement. “The bill also ensures America leads the financial system of the future and remains a hub for technological innovation.”
The crypto-centric legislation also “provides the Commodity Futures Trading Commission (CFTC) with new jurisdiction over digital commodities and clarifies the … SEC’s jurisdiction over digital assets offered as part of an investment contract.”
The crypto industry has held the view that the SEC’s approach to its operations is relatively antagonistic, with many believing that the agency is committed to a regulation-by-enforcement strategy.
“Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the SEC,” Gensler emphasized in April 2023, adding that the crypto industry currently entails “risks and conflicts the commission does not allow in any other marketplace.”
Crypto industry representatives responded positively to the shift in their sector’s oversight to the CFTC.
“This is a resounding win in the House for clear crypto rules and a complete rejection of the nonsense being spouted by those who tried to kill this technology…,” Coinbase CEO Brian Armstrong posted on social platform X. “Sensible regulation of crypto just took a big step forward. Next stop is the Senate.”
Wow – 71 dems voted Yes! A total victory
I was hearing anything in the 20-40 range would be considered a win.https://t.co/0sd9iNauv9
This is a resounding win in the House for clear crypto rules, and a complete rejection of the nonsense being spouted by those who tried to kill… https://t.co/cXW1cXs9m7
— Brian Armstrong (@brian_armstrong) May 22, 2024
According to PYMNTS Intelligence, 52% of traditional financial firms considering blockchain and crypto adoptions said unclear regulation was their top concern.
Read also: Crypto Continues to Serve as Case Study in Behavioral Economics
What’s Next for Crypto?
The bill, which has a long runway ahead before being signed into law, “establishes a process to permit the secondary market trading of digital commodities if they were initially offered as part of an investment contract.” It also “imposes comprehensive customer disclosure, asset safeguarding, and operational requirements on all entities required to be registered with the CFTC and/or the SEC.”
Still, as PYMNTS CEO Karen Webster wrote back in 2017, “bitcoin was an interesting, even fascinating, innovation, but not the salvation of our global financial system — not even close.”
With political momentum seemingly behind the industry, now will be the time for the crypto sector to prove its worth — or risk revealing to the world that this whole time the emperor truly had no clothes.
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