US Elections 2024: Will a crypto-savvy President be preferred after the FIT21 bill?

May 2024 saw the US House of Representatives pass FIT21 – the Financial Innovation and Technology for the 21st Century Act – in what has been dubbed a watershed moment for the nation’s digital asset ecosystem. Moreover, a recent Harris poll of 1,700 people sponsored by bitcoin ETF issuer Grayscale revealed that a staggering 77% believe that a US presidential candidate should have at minimum an “informed perspective” on cryptocurrency.

Crypto regulation in the US

Otherwise known as H.R. 4763, the House Financial Services Committee explained that the Bill “provides the robust consumer protections and regulatory clarity necessary for the digital asset ecosystem to thrive in the U.S. – cementing American leadership of the global financial system of the future while reinforcing our role as a hub for innovation.”

The Commodity Futures Trading Commission (CFTC) will now preside over digital commodities and the Securities and Exchange Commission (SEC) will do the same in regards to digital assets when offered within an investment contract. Alongside this, the legislation permits secondary market trading of digital commodities, even if initially offered as part of an investment contract. Finally, the Bill imposes customer disclosure, asset safeguarding and operational requirements for all entities to be registered with the CFTC and/or the SEC.

Cryptocurrency risk concerns the SEC, the CFTC, the Department of Justice (DoJ) and the Department of the Treasury. Here’s an overview of how each organisation has approached establishing a regulatory framework historically.

SEC – classifies cryptocurrency companies as securities exchanges and therefore must comply with the same investor protection standards that govern publicly-traded companies.

CFTC – perceives cryptocurrency as a commodity and attempts to mitigate illicit behaviour conducted by market manipulators in the same way it would in derivatives markets.

DoJ – targets cryptocurrency that is being used for criminal activity, namely extortion, fraud and money laundering and prosecutes crypto exchanges that turn a blind eye.  

Department of the Treasury – considers cryptocurrency based on the gains or losses individuals experience and how it is reported to the Internal Revenue Service (IRS) for tax purposes.

What will FIT21 do?

Introduced by Chairman Glenn ‘GT’ Thompson, Rep. French Hill, Rep. Dusty Johnson, Whip Tom Emmer, Rep. Warren Davidson and cosponsored by Chairman Patrick McHenry, FIT21 will

Require:

1. Developers to disclose accurately.
2. Institutions to disclose appropriately to customers.
3. Institutions to segregate customer funds from their own.
4. Institutions to reduce conflicts of interest.

Protect:

1. Developers’ need to raise funds.
2. Transactions subject to the SEC’s and CFTC’s jurisdiction.
3. Clear lines between the SEC and CFTC.
4. Registration regimes to allow institutions to lawfully serve customers in digital asset markets.

Can the digital asset ecosystem to thrive in the US?

According to Chairman Patrick McHenry, it can. At the time the Bill passed, he said: “FIT21 provides the regulatory clarity and robust consumer protections necessary for the digital asset ecosystem to thrive in the United States. The bill also ensures America leads the financial system of the future and remains a hub for technological innovation.”

Rep. Dusty Johnson agreed: “House passage of FIT21 is necessary to bring stability and clarity to the digital assets ecosystem. Without this bill, digital asset innovation will continue to be filled with uncertainty. Today’s victory gets us one step closer to establishing clear rules of the road for developers in the industry so America can remain a global hub for tech and finance innovation. I hope the Senate considers this bill soon so we can finalize this essential framework.”

Matthew Le Merle, co-founder and managing partner, Blockchain Coinvestors, spoke to Finextra, and said: “Finally, our political leaders have realized that more than 50% of their electorate are digital natives and that this demographic not only wants, but relies upon digital ways to conduct their lives. They will vote for those who agree with them.

“Digital natives are pro-crypto, highly frustrated by the traditional high cost, and hard to access financial system, and angry with politicians and appointed leaders who have been shown to be capricious, arbitrary, in some cases apparently criminal and always anti innovation and digital progress. The Warren anti-crypto army all have bullseyes painted on their foreheads now and forever.

“FIT 21 is the US's response to the reality that almost every other financial center in the world is now ahead of America with regard to enabling the digitalization of finance and commerce. It is time to clear out the Luddites and move the US into a position of leadership.”

Will crypto regulation become a partisan issue?

As reported by CoinDesk, 33% revealed that digital assets will be a consideration when deciding which candidate they will support. In addition to this, the report concluded that 47% think crypto has a place in their investment portfolios. Zach Pandl, Grayscale’s head of research, said: “Likely American voters from across the political spectrum indicate a heightened interest in investing in crypto assets and in supporting candidates well-versed in the emerging technologies.”

Also hitting headlines in May was the announcement that Donald J. Trump's campaign started accepting crypto donations, following up on his prior pledge to become the first major party candidate to embrace bitcoin, ether and other digital currencies. DonaldJTrump.com released a statement that mentioned how the former President “has reduced regulations and championed innovation in financial technology, while Democrats, like Biden and his official surrogate Elizabeth Warren, continue to believe only government has the answers to how our nation leads the world.”

Following the implication that regulation does not foster innovation, the statement went on to reference Senator Elizabeth Warren’s plan to establish an “anti-crypto army”. At the start of this month at a hearing of the US Senate Armed Services Committee, she discussed the “threat posed by not properly regulating cryptocurrencies, including the inadvertent funding of rogue nations.”

Senator Warren continued to say that “without proper anti-money laundering regulations, bad actors are using crypto to evade U.S. sanctions, and that those actors are making hundreds of millions of dollars annually by acting as middlemen in the growing crypto ecosystem.”