White House opposes FIT21 but says it's 'eager to work with Congress' on balanced framework for digital assets

The White House is opposing the passage of the Financial Innovation and Technology for the 21st Century Act, also known as FIT21 or H.R.4763. 

"The Administration opposes passage of H.R. 4763, which would affect the regulatory structure for digital assets in the United States," according to a statement on Wednesday. "The Administration is eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, which will promote the responsible development of digital assets and payment innovation and help reinforce United States leadership in the global financial system."

The White House said that the bill currently lacks "sufficient protections for consumers and investors who engage in certain digital asset transactions." It added that more time will be needed to work with Congress on digital asset legislation.

The comments come as the U.S. House of Representatives are preparing to vote on FIT21 later today. 

FIT21 would grant more power and funding to the Commodity Futures Trading Commission to oversee crypto spot markets and "digital commodities," particularly bitcoin. The bill also creates a process to allow for the secondary market trading of digital commodities if they were "initially offered as part of an investment contract."

Though FIT21 is unlikely to be brought up in the Senate this year, the bill could set the stage for the next Congress in January.

FIT21 controversy

House Financial Services Committee Ranking Democrat Maxine Waters told the House Rules Committee on Tuesday that FIT21 was one of the worst bills she's ever seen. FIT21 would stretch the CFTC's resources, which would weaken the agency's enforcement of the industry, Waters said. The SEC has 4,500 staff members, according to its website. The CFTC has closer to 700 employees, according to a fiscal year 2024 budget document.

"Let me let you on a secret that the big crypto doesn't want you to know even under this bill," Waters said. "The CFTC does not get enough authority to regulate crypto in this bill."
 
SEC Chair Gary Gensler has also criticized FIT21 and said it would create new gaps in regulation and throws away the Howey Test, which is a 1946 U.S. Supreme Court case frequently cited by the SEC in cases involving crypto, to determine if an asset qualifies as an investment contract and, therefore, a security.

"The crypto industry’s record of failures, frauds, and bankruptcies is not because we don't have rules or because the rules are unclear. It’s because many players in the crypto industry don’t play by the rules," Gensler said. "We should make the policy choice to protect the investing public over facilitating business models of noncompliant firms."

There is not a companion bill for FIT21 in the Senate, and top lawmakers in the Democrat-controlled Senate have not shown interest in the bill or have opposed it in the past.

Investment bank TD Cowen said earlier this month the bill stood "no chance of becoming law in this Congress" but noted it could shed light on how Democrats and Republicans view critical issues such as anti-money laundering and investor protections

Biden vs Trump on crypto

Rumblings the Biden administration might have begun to pay more attention to crypto, due to its potential to influence how Americans vote in the upcoming presidential election, emerged earlier this week.

A Bloomberg ETF analyst suggested that the political implications of the Securities and Exchange Commission ruling to deny applications for spot ethereum exchange-traded funds could potentially reflect poorly on the Biden administration ahead of the election.

Presumptive Republican presidential nominee Donald Trump has recently made moves to appear to be a pro-crypto candidate. On Tuesday, Trump announced he would take campaign donations in the form of crypto.

Alexander Grieve, who handles government affairs at venture capital firm Paradigm, called the White House’s statement “a huge course correction” in a post to X. “What happened between then and now? Trump endorsed crypto, Democrat allies called the White House, and 700,000 crypto voters made their voices heard,” added Grieve.

Paradigm is a supporter of Stand With Crypto, a non-profit which both advocates for crypto and mobilizes voters interested in digital assets.

“The White House statement is not particularly surprising as they have to defend their regulators and regulatory agencies,” Scott Mason, a senior policy advisor at the law firm Holland & Knight, told The Block.

Mason added that although the office of the president said it opposes the legislation, it "did not say that President Biden would veto the bill.”

“They obviously are cognizant that the SEC is under extreme congressional scrutiny at the moment with both the House and Senate passing Congressional Review Act bills with significant bipartisan support last week criticizing the SEC over their recent Staff Accounting Bulletin 121 re: digital assets,” Mason also said.