The House Financial Services Committee marked a historic first this past week, approving several crypto focused bills that will now be considered by the full House.

Crypto provisions have previously been inserted into other legislation.

But the Financial Innovation and Technology (FIT) for the 21st Century Act and the Blockchain Regulatory Certainty Act, are the first major acts wholly focused on regulating the crypto sector, to make it out of committee.

Both passed on 27 Jul, with the FIT act garnering a 35 to 15 tally, including bipartisan support, but also mostly Democrat opposition.

The FIT Act provides clarity regarding which federal agencies would oversee crypto offerings, depending on features of the tokens and technology involved.

Among its major provisions, it:

• Establishes a new system of regulation for digital assets. A new regulatory framework for digital assets, such as cryptocurrencies and stablecoins, would be established by the measure. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) would be in charge of monitoring this system.
• Creates consumer protections for anyone who uses digital assets. Users of digital assets would be subject to new consumer safeguards under the proposed legislation, including disclosure and fraud prevention obligations.
• Encourages American leadership in digital asset innovation. By establishing clear guidelines for market players and encouraging innovation, the bill would support American leadership in the digital asset sector.

One major aspect of the bill is how it specifies regulatory frameworks based on the underlying nature of the asset. It sets out criteria for cryptocurrencies that would be regulated by the CFTC as commodities, and criteria that would subject cryptocurrencies to regulation by the SEC as securities.

But the committee didn’t stop with the FIT act. It also approved the Blockchain Regulatory Certainty Act.

That bill would give protection to certain persons and entities that are integral to decentralized blockchain networks.

Its major provisions include:

• Safe harbor for non-controlling blockchain service suppliers and developers. Developers of blockchain technology and companies offering blockchain services who do not have any ownership or management of the digital currency or other assets kept on the blockchain network are covered by the safe harbor. This indicates that these organizations would not be subject to the same regulatory standards as conventional financial institutions, such as those requiring the acquisition of a license or registration with the government.
• blockchain technology’s protection of intellectual property rights. The proposed legislation would make it clear that the development of blockchain software or the establishment of a blockchain network does not constitute the sale or issue of securities. For companies creating blockchain technology, this would bring about the much-needed certainty they need to safeguard their intellectual property rights.
• promotion of blockchain technology research and development. For businesses that invest in blockchain-related R&D, the measure would offer tax benefits. This would aid in enticing companies to make investments in the creation of fresh blockchain services and apps.

Many in the crypto sector reacted positively to the passage of the bills out of Committee, though the legislation still has a long way to go.

“This is a historic day for crypto policy. The Financial Committee just advanced the FIT for the 21st Century Act by a vote of 35 to 15, including significant support from Democratic members,” Jake Chervinsky, chief policy officer at the Blockchain Association industry group, commented.

Ex Federal prosecutor Kathryn Haun, hailed the FIT Act, and said crypto was a leading technology for increasing financial access while providing transparency that legacy siloed systems do not:

“As an ex-federal prosecutor, I know the massive flaws in our AML/KYC system. We spend >$40B each year on rules that have a 99% failure rate – and keep millions of legitimate customers from accessing financial services. It’s broken. 

“We need something better. Senators that genuinely care about national security will work collaboratively with TradFi and crypto to fix *that* problem rather than beating up on the most auditable payments infrastructure ever invented.” 

TRENDPOST: Passage of these bills out of committee is more welcome news for the crypto sector. But it also spells potentially brighter things for the U.S. economy.

Many believe the innovations of crypto technology are set to transform legacy financial systems and services in a way that increases liquidity, offers novel ways to exploit digital and physical assets, and reduces the friction and costs of middle players.

In other words, direct crypto investors and holders of crypto assets may benefit. But the larger story is how the technology is set to benefit people and the economy more generally.

Reporting on the historic day in the House, crypto reporter Paul Barron observed that when Financial Services Committee Chairman Patrick McHenry (R-NC) used the term “web3” in the context of blockchain innovation, it represented a watershed moment.

We also queried Google’s Bard AI regarding what final passage of the crypto legislation might mean for the economy. It predicted positive likely effects, including:

• Increased economic activity. The increased investment, innovation, and adoption of cryptocurrencies and other digital assets would likely lead to increased economic activity. This would be due to the fact that these assets could be used to facilitate a wider range of transactions, including cross-border payments, remittances, and the purchase of goods and services.
• Increased innovation. The increased investment and innovation in the crypto sector would also likely lead to increased innovation in the overall economy. This is because the technology underlying cryptocurrencies and other digital assets could be used to improve a wide range of products and services, such as supply chain management, financial services, and voting systems.
• Increased competition. The increased adoption of cryptocurrencies and other digital assets would also likely lead to increased competition in the financial services industry. This is because these assets could be used to provide financial services that are currently offered by traditional financial institutions, such as payments, lending, and insurance.