By
Steve Muchoki
June 14th, 2024
Gensler’s firm stance against the FIT21 Act highlights a significant divide between regulators and the crypto industry over how digital assets should be governed.
SEC Chair Gary Gensler has voiced staunch opposition to the Financial Innovation and Technology for the 21st Century Act (FIT21), ahead of its scheduled House vote. Gensler argues that the proposed legislation poses a threat to established regulatory frameworks and investor protections.
Potential Risks to Investor Protection
Gensler’s main contention with the bill, designated as H.R. 4763, is that it would alter how crypto assets are classified, effectively removing them from SEC oversight. He warns that this could create regulatory loopholes and undermine decades of oversight standards, putting investors and capital markets at risk.
A key issue for Gensler is the bill’s provision allowing crypto firms to self-certify as “decentralized” or “digital commodities.” He warns that this could limit SEC scrutiny due to resource constraints, leaving significant portions of the crypto market without adequate regulation.
Gary Gensler cautions that such a process could extend risks beyond the crypto space, threatening broader $100 million capital markets. He highlighted the danger of fraudulent schemes, such as pump and dump operations, if bad actors could avoid securities laws by rebranding themselves as crypto investment contracts.
The FIT21 Act seeks to reassign more regulatory duties to the Commodity Futures Trading Commission (CFTC) by introducing a “digital commodity” classification for certain digital assets. However, Gensler criticized this approach, arguing that it ignores established legal tests like the Howey Test, which defines securities.
He asserted that excluding crypto trading platforms from the definition of an exchange and replacing tried-and-tested frameworks with the new classification would ultimately endanger investors.
Legislative Support and Opposition
Support for the FIT21 Act comes primarily from the US Republican Party, which aims to provide a more comprehensive regulatory framework for the crypto industry and increase the CFTC’s oversight role.
Notably, Former President Donald Trump and his advisors have also signaled their backing for FIT21, with Trump recently indicating a willingness to accept campaign donations in cryptocurrency. House Speaker Nancy Pelosi is reportedly considering a vote on the bill, which is slated to take place later on Wednesday.
Major industry stakeholders have also endorsed the bill. Sixty crypto organizations, including Gemini, Kraken, and Coinbase, have voiced their support, citing the need to update outdated securities laws to suit the digital asset market. They argue that current regulations, which date back nearly a century, are ill-suited for the complexities of the crypto space.
Gensler’s firm stance against the FIT21 Act highlights a significant divide between regulators and the crypto industry over how digital assets should be governed. As the House prepares to vote, the outcome could have profound implications for the future regulation of the cryptocurrency market in the United States.