President Joe Biden is “opposed” to the Financial Innovation and Technology for the 21st Century Act, or FIT21—the crypto market structure bill that’s planned to go up for a vote in the House of Representatives on Wednesday. But he didn’t threaten to veto it, potentially signaling a shift for the administration.
Previously, Biden said he would veto a bill erasing rules from the Securities and Exchange Commission (SEC) on crypto custody for banks. While the measure repealing the SEC’s Staff Accounting Bulletin (SAB) 121 has passed the House and Senate, Biden has yet to veto it.
The White House said it opposes the FIT21 bill because it lacks sufficient protections for consumers and investors who engage with crypto. Meanwhile, the stance mirrored comments from SEC Chair Gary Gensler, who sounded the alarm on Wednesday in written remarks.
In a letter, the agency’s leader warned that enacting novel rules for regulating crypto could undermine the strength of America’s capital markets and leave investors in the dark on disclosures they deserve, “putting [both] at immeasurable risk.”
This afternoon, the House is expected to vote on FIT21. The bill, which has received bipartisan support from Democrats and Republicans, would create a federal framework for the SEC and Commodity Futures Trading Commission to regulate digital assets.
Among his gripes, Gensler lamented that the bill would remove so-called investment contracts from the statutory definition of a security. Previously, the SEC has said many tokens resemble securities on the basis that investors allocate money to tokens with the expectation of profits derived from the efforts of others. Altering that designation for crypto is telling, Gensler claimed.
“The bill implies what courts have repeatedly ruled—but what crypto market participants have attempted to deny—that many crypto assets are being offered and sold as securities under existing law,” he wrote.
Gensler’s warning comes amid shifting political winds on Capitol Hill.
Analysts have pointed to Former President Donald Trump’s embrace of crypto as a motivating force behind the urgency to enact new crypto rules. News that Trump’s campaign is now accepting cryptocurrency donations broke yesterday, after lawmakers voted to erase the SEC’s crypto custody rules that restrict banks ability to safeguard the assets.
Taking into consideration how decentralized a cryptocurrency is, the bill would provide a pathway for projects’ issuers, “or any person,” to self-certify assets as “digital commodities,” Gensler wrote. Leaving the SEC with only 60 days to review and challenge the certifications, Gensler expressed doubt the agency would be able to keep up, citing constrained resources.
Gensler pointed out that the SEC is being asked to do more without additional funding. And if the agency fails to challenge certifications during that aforementioned window, he said a “vast majority of the market might avoid even limited SEC oversight.”
Excluding crypto asset trading platforms like Coinbase from the definition of an exchange would also put investors in harm’s way, Gensler claimed, because companies could theoretically commingle funds or bet against their customers, among other conflicts of interest.
Letting companies pick and choose which regulatory regimes they are subject to could be disastrous, in his view, if non-crypto firms seek a framework that Gensler described as having a “light-touch.” Penny stock pushers and pump and dump schemers are among those that could, Gensler said.
“Many players in the crypto industry don’t play by the rules,” Gensler concluded, pointing to fraudsters and bankruptcies. “We should make the policy choice to protect the investing public over facilitating business models of noncompliant firms.”
Edited by Andrew Hayward