Growing political support and the successful bipartisan vote for the crypto-focused FIT21 regulation could signal a new era in crypto regulation in the US.
Over the past couple of years, the crypto-related business in the US has gone through a rough patch. The crash of FTX and subsequent regulatory crackdowns by federal and state agencies painted a grim picture for the industry. Numerous companies, such as Binance US, Coinbase, and Kraken, were charged and fined by the SEC. Binance’s ex-CEO Changpeng “CZ” Zhao has even received a four-month prison sentence. Others, like Nexo, opted to exit the US market altogether.
However, as the crypto market enters a new growth phase and the presidential election draws closer, the mood is starting to change.
Donald Trump is one of the most visible signs of this transformation. The eccentric ex-President continues his crypto crusade, meeting on Tuesday with Nasdaq-listed bitcoin mining firms CleanSpark Inc. and Riot Platforms. Judging by his ensuing post on the social media platform Truth Social, the meeting went well. “Bitcoin mining may be our last line of defense against a CBDC. Biden’s hatred of Bitcoin only helps China, Russia, and the Radical Communist Left. We want all the remaining Bitcoin to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT,” Trump wrote.
On the Hill, the new pro-crypto tendency is also starting to get noticed. The House of Representatives has recently delivered a pleasant surprise by passing a bill that many call “historic”, the FIT21.
The importance of FIT21
Financial Innovation and Technology for the 21st Century Act (FIT21), passed with a bipartisan vote of 279-136, became the first crypto-focused legislation that received approval of either chamber of Congress. 71 Democrats joined 208 Republicans in this vote, proving that the crypto issue can be truly bipartisan and not exclusively Republicans’ prerogative.
If FIT21 clears the Senate and becomes law, it will finally establish a framework that clearly defines which cryptoassets are classified as securities (to be regulated by the SEC), and which are considered commodities (to be regulated by the CFTC). Currently, the SEC claims authority over all cryptoassets and regularly sues crypto companies for issuing or trading “unregistered securities”. Such behavior is considered one of the biggest problems hindering the development of the crypto industry in the US, and FIT21 could help change it.
The legislation proposes to classify cryptoassets depending on the decentralization of their underlying network or project: decentralized projects’ tokens will be considered commodities, and centralized ones’ securities. A potential loophole for FIT21 is that the SEC will remain the judge of decentralization, but with clear guidelines and the possibility to openly dispute its decisions, it would be easier for crypto firms to stand their ground. What’s good about FIT21 is that it allows for accommodating cryptoassets’ changing nature. A coin issued on a new, not yet sufficiently decentralized blockchain, can be considered a security at first, but as the blockchain matures and decentralizes, it could become a commodity.
SEC v Uniswap
The SEC Chair Gary Gensler is, of course, vehemently against FIT21, which threatens to curtail his authority and force the Commission to change its methods. It would also put a stop to some of the current SEC cases, such as the attack on Uniswap Labs, the developer of the world’s biggest decentralized exchange (DEX).
In April, the SEC issued Uniswap a Wells notice, warning the company that it identified potential violations of U.S. securities law, notably being an unregistered securities exchange and its interface and wallet being unregistered securities brokers. Last month, Uniswap published a 43-page filing arguing that the protocol does not meet the definition of an exchange and is thus not subject to regulation by the SEC.
Indeed, a DEX is merely a set of smart contracts deployed on a blockchain and functioning in an automated way. Uniswap Labs only controls the DEX interface (webpage) but does not have access to its users’ funds at any time.
As the lawyers on both sides prepare for battle, the political climate changes. So far, Gary Gensler has had President Biden’s support. However, if Donald Trump continues to be vocal about crypto, the incumbent might decide to soften his stance, and the SEC might follow. The Uniswap case could be a litmus test for this changing attitude.
The US is still far from comprehensive crypto regulation, but if this nascent crypto-friendly trend continues, the country will cement its leading role in the sector.
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