What is the FIT21 Crypto Bill — And Why Is It So Important?

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The U.S. House of Representatives approved a crucial crypto bill called the Financial Innovation and Technology for the 21st Century Act (FIT21) on May 22, 2024, marking a major step forward toward delivering regulatory clarity for the crypto industry in the U.S.

The FIT21 bill aims to clearly define cryptocurrencies, categorize whether a particular crypto is a security or a commodity, and decide which government body regulates them.

The proposed crypto bill will next be sent to the U.S. Senate for a vote.

What is the FIT21 crypto bill? Let’s find out.

Key Takeaways

  • The FIT21 bill aims to split crypto regulation duties between the SEC and CFTC.
  • The proposed bill has a “decentralization test” that will determine whether a token is a security or a commodity.
  • Crypto securities will be regulated by the SEC, while crypto commodities will be regulated by the CFTC.
  • The proposed bill will allow crypto tokens to decentralize over time to become a commodity.
  • SEC Chair Gary Gensler slammed the FIT21 bill saying that it puts investors and capital markets at risk.

        About Financial Innovation and Technology for the 21st Century Act (FIT 21)

        #The FIT21 bill is a consumer protection bill that aims to establish a regulatory framework for digital assets.

        The bill aims to protect consumers while ensuring that crypto innovators are not wrongfully prosecuted by regulators like the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) due to “absent clear rules”.


        “FIT21 provides the robust, time-tested consumer protections and regulatory certainty necessary to allow digital asset innovation to flourish in the United States,” said the Financial Services Committee.

        The bill will introduce a “decentralization test” to determine whether a crypto is deemed a security or a commodity. The SEC will regulate digital asset securities, while the CFTC will regulate digital asset commodities.

        The FIT21 bill is a joint effort by the House Committee on Financial Services and the House Committee on Agriculture. The bill was first introduced to the U.S. House of Representatives in July 2023.

        “Absent clear rules, we will continue to see the SEC pursue a ‘regulation by enforcement’ agenda that leaves market participants fearing that they’ll be subject to litigation at a moment’s notice if they continue to operate in the U.S,” testified U.S. Congressman French Hill before the House Committee on Rules on May 21, 2024.

        What Does the FIT21 Bill Do?

        The FIT21 bill aims to do four key things:

        1. Consumer protection requirements – The bill looks to impose strict consumer protections on crypto service providers for disclosures, segregation of funds, capital provisions and higher custody standards.
        2. Drawing the lines of authority for CFTC and SEC – The bill will clearly define whether a crypto is a security or a commodity, allowing the CFTC to regulate crypto commodities. The bill will give the SEC clear authority over crypto securities.
        3. Allowing crypto projects to evolve from centralization to decentralization – The bill will allow crypto tokens to decentralize over time to become a commodity.
        4. Championing crypto innovation in the U.S. – The bill will enable crypto companies and startups to innovate without fear of litigation by providing regulatory clarity for the digital asset ecosystem.

        Decentralization Test of FIT21 – Crypto Security or Crypto Commodity?

        Here is how the FIT21 act will deem a cryptocurrency to be sufficiently decentralized in order to be classified a commodity.

        “The bill classifies a blockchain as decentralized if, among other requirements, no person has unilateral authority to control the blockchain or its usage, and no issuer or affiliated person has control of 20% or more of the digital asset or the voting power of the digital asset,” read the FIT21 summary.

        In a conversation with Bankless Podcast U.S. Representative Patrick McHenry said that the FIT21 bill’s “decentralization test” has been “refined with a lot of feedback.”

        Representative McHenry added that the decentralization test is a “very clear bright line test” that allows crypto projects to determine whether the tokens they issue will be categorized as a security or a commodity.

        Furthermore, Representative McHenry said the concepts of centralization and decentralization is a “broad spectrum,” with Bitcoin (BTC)’s decentralization level being on one end of the spectrum.

        With regards to Ethereum (ETH), Representative McHenry said that Ethereum “clearly” passes FIT21’s decentralization test, making it a crypto commodity.


        SEC Response to FIT21

        In what you might call the safest bet in crypto, U.S. SEC Chair Gary Gensler is not a fan of the FIT21 bill.

        On May 22, 2024, Chair Gensler slammed the proposed bill in a blog post, saying the FIT21 bill could put investors and capital markets at risk by creating a new regulatory gap.

        Chair Gensler added that the FIT 21 bill’s decentralization test abandons the “Supreme Court’s long-standing Howey test” and allows crypto projects to self-certify as “decentralized” to escape SEC oversight.

        He also said that the U.S. SEC would be understaffed to handle digital commodity certification requests from the more than 16,000 crypto assets currently in existence.

        “What if perpetrators of pump and dump schemes and penny stock pushers contend that they’re outside of the securities laws by labeling themselves as crypto investment contracts or self-certifying that they are decentralized systems? The SEC would only have 60 days to contest their self-certification,” wrote Chair Gensler.

        It is a big week for the SEC, with the first Ethereum ETF decisions also due this week.

        The Bottom Line

        The FIT21 bill still has a long way to go before it becomes law, and the U.S. Senate will vote on the bill next.

        If passed, the crypto bill will return to the House and Senate for final approval.

        Once approved, the President will have ten days to sign or veto the bill.

        The Biden Administration issued an announcement saying that it opposed the FIT21 bill in its “current form” but was “eager to work” to ensure a balanced regulatory framework for cryptocurrencies.

        The Biden Administration did not make any veto announcements on the bill.


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        Mensholong Lepcha
        Crypto & Blockchain Writer
        Mensholong Lepcha
        Crypto & Blockchain Writer

        Mensholong is an experienced crypto and blockchain journalist, now a full-time writer at Techopedia. He has previously contributed news coverage and in-depth market analysis to Capital.com, StockTwits, XBO, and other publications. He started his writing career at Reuters in 2017, covering global equity markets. In his free time, Mensholong loves watching football, finding new music, and buying BTC and ETH for his crypto portfolio.