The House Passed a Crypto Bill That’s Crucial for the Industry. Its Future Is Murky.

The bill, called the Financial Innovation and Technology for the 21st Century Act, or FIT 21, creates a path for cryptocurrencies to be exempt from many securities regulations if they achieve a sufficient level of decentralization, among other things. That’s in contrast to the way the Securities and Exchange Commission currently polices crypto and would likely mean that much of the industry would fall outside the agency’s remit.

Now the proposed law moves to the Senate, where its fate is uncertain. Unlike the House, the Democratic-controlled Senate has spent very little time on crypto-related issues and doesn’t have a companion bill at the ready to pair with what the House just passed. With limited time on the calendar before election season, the most likely outcome for this year is that the Senate doesn’t take up crypto legislation at all.

But Wednesday’s vote was still a positive sign for a similar bill’s prospects next year and a blow to some progressive groups that rallied against it.

For evidence of the vote’s importance, just look at the statement SEC Chair Gary Gensler issued Wednesday morning.

FIT 21 “would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk,” said Gensler.

It is rare for an agency head to publicly comment so directly on pending legislation. The statement aligns with worries in progressive circles that some lawmakers are dropping longstanding concerns about crypto’s potential harm to consumers, after a fierce lobbying campaign and hefty campaign donations by industry leaders, including

Coinbase Global
.

“What’s happening here is that political money is trumping good policy,” said Mark Hays, a senior policy analyst for Americans for Financial Reform, before the vote. “When you know that a crypto super PAC can drop a million dollars on your campaign in October, it shouldn’t flip your policy choices, but it has an impact.”

The White House on Wednesday issued a statement opposing the bill’s passage, citing insufficient investor protections, but didn’t threaten to veto it. It said it looked forward to working with Congress on digital asset legislation.

Earlier this week, the Americans for Financial Reform and dozens of other organizations, including major labor organizations like the AFL-CIO, sent a letter to House leaders calling on them to vote against the bill. They wrote FIT 21 wouldn’t just insulate crypto from most securities regulation, but create loopholes that Wall Street firms could exploit to avoid oversight of traditional investment products.

Coinbase and other firms have contributed tens of millions of dollars to pro-crypto political-action committees, making them one of the most well-financed forces so far in the 2024 campaign. The industry says FIT 21 would help crypto businesses thrive in the U.S. by creating a clear pathway for them to do business without falling afoul of securities rules, which they say are impossible to comply with.

In an interview earlier this week, Coinbase head of U.S. policy, Kara Calvert, said the vote is a sign of momentum for the industry’s influence in Washington and that lawmakers are taking notice that more voters own crypto. She said the bill still gives the SEC a strong role in policing cryptocurrencies.

Coinbase and many other firms are also in battles with the SEC. The agency last year sued Coinbase and other trading platforms for operating unregistered securities exchanges. The company denies the allegations and is fighting them in court. If Coinbase lost, it would likely have to delist some tokens and stop offering some products to U.S. investors.

The bill could become a starting point for a new legislative push next year, especially if former President Donald Trump takes the White House. The Trump campaign on Tuesday said it would start taking crypto donations, a symbolic move that shows how much his party has warmed to sector interests.

The crypto industry is unlikely to get its favored regulatory regime into law this year, but Wednesday’s vote goes a long way to setting the stage for the future.

Write to Joe Light at [email protected]

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