US House passes controversial cryptocurrency bill amid SEC warning

Key Takeaways

• The bill won bipartisan support in the House, 279 to 136, but now faces an uncertain future in the Senate.
• Supporters of the bill argue that it will provide much-needed regulatory clarity that has been lacking, potentially spurring greater growth and innovation within the cryptocurrency industry.
• SEC Chairman Gary Gensler strongly criticized the bill, saying it would undermine existing financial regulations and protections.

In a significant legislative move, the U.S. House of Representatives on Wednesday approved a Republican-sponsored bill that could change the legal landscape for digital currencies. 21st century financial innovation and technology law By a bipartisan vote of 279-136. The bill, which seeks to provide a new legal framework for digital currencies, now faces uncertainty in the Senate.

The bill has garnered support from a variety of lawmakers who believe it will provide much-needed regulatory clarity and foster growth within the cryptocurrency industry. This House approval is consistent with recent positive changes at the U.S. Securities and Exchange Commission (SEC). Potential green light shown Demand for spot Ether exchange-traded fund (ETF) applications has increased, giving a boost to the sector.

“The bipartisan passage of HR 4763, the Financial Innovation and Technology for the 21st Century Act (“FIT21 Act”), is a welcome step toward building the next generation of financial infrastructure, said Nicole Valentine, Director of FinTech at the Milken Institute.

“Regulatory certainty and clarity for financial innovation are critical to the growth, competitiveness, and resilience of the U.S. financial system. The FIT21 Act supports responsible innovation in digital assets and provides the clarity and guidance needed to innovate, build and invest with some certainty,” Nicole said.

“We see potential for the growth of digital assets and blockchain technology to promote financial inclusion and economic mobility. “The U.S. House of Representatives’ passage of the FIT21 Act is a sign that America is ready to lead the way in setting global standards in the evolving financial sector,” Nicole added.

But the bill has not been without its critics, most notably SEC Chairman Gary Gensler, who has warned in detail about the potential risks the bill poses to investors and the broader financial markets.

Gensler criticized the bill for creating “new regulatory gaps” and undermining “decades of precedent” in financial supervision, suggesting it could put both investors and capital markets at serious risk.

Elaborating on his concerns, Gensler emphasized that the bill proposes to exempt investment contracts recorded on blockchain from the traditional definition of securities. These exemptions strip us of many of the protections of the federal securities laws. The bill also institutes a self-certification process for cryptocurrency issuers, labeling their products as “decentralized” and classifying them as “digital products” not subject to SEC oversight.

One of the most controversial aspects of the bill is its departure from the Supreme Court’s established Howey test, which evaluates the economic realities of an investment to determine its regulatory status. Instead, the bill opts for a system that makes decisions based on the labels and accounting ledgers used in transactions.

Gensler expressed caution about the broader implications of this self-certification process, warning that it could potentially undermine the entire $100 trillion capital market by allowing companies to evade strict regulations designed to protect investors.

He raised the possibility that this loophole could be exploited by actors involved in fraudulent schemes such as pump-and-dump operations or penny stock promotions. They can evade securities laws by disguising their activities as cryptocurrency.

The bill now heads to the Senate, but its fate remains uncertain. As the cryptocurrency industry watches closely, the broader implications of these legislative efforts could redefine the balance between innovation and regulation in the burgeoning digital asset space.

Also Read: WisdomTree Approved for Launch of Bitcoin and Ethereum ETPs on London Stock Exchange.