June 23, 2024

Crypto Industry Pushes for New Regulatory Framework and Ether ETFs Amidst Hopeful Week in Washington

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The cryptocurrency industry is gearing up for potential significant gains this week as it lobbies for a new regulatory framework and awaits approval of exchange-traded funds (ETFs) that would invest directly in ether, the second-largest digital currency.

On Wednesday, the House of Representatives is scheduled to vote on the Financial Innovation and Technology for the 21st Century Act, known as FIT21. This legislation aims to establish the Commodity Futures Trading Commission (CFTC) as a primary regulator for digital assets, delineating clear divisions between what the CFTC and the Securities and Exchange Commission (SEC) will regulate. This move is seen as a crucial step in providing the industry with the oversight it desires while mitigating the aggressive enforcement actions the SEC has taken against crypto operators.

Key provisions of FIT21 include the establishment of consumer protections and the prohibition of the co-mingling of customer funds, an issue that contributed to the collapse of the cryptocurrency exchange FTX in late 2022. The industry has been lobbying intensely for this framework, favoring it over the SEC’s stringent enforcement measures.

“This marks the official end to the losing narrative that crypto is not here to stay,” said Cody Carbone, chief policy officer for The Digital Chamber, a prominent crypto lobbying group.

Despite its support, the bill faces opposition from some Democrats and may encounter challenges in the Senate. Representative Patrick McHenry (R-N.C.), the bill’s lead sponsor, remains optimistic, stating, “What the Senate will see is a vote total. I think that that should get members of the Senate to take a fresh look at this.”

The anticipation surrounding the potential approval of ether ETFs by the SEC has also fueled optimism within the crypto market. Ether saw a significant rally this week as investors grew more confident in the SEC’s possible approval. The SEC’s approval of bitcoin ETFs in January, which expanded mainstream acceptance of the largest cryptocurrency, has set a precedent that investors hope will extend to ether.

Around 60 crypto companies and industry organizations, including major players like Block, Coinbase, Circle, Kraken, and Paxos, have expressed their support for FIT21, sending a letter to House leadership last week. “The bill is well written,” said Kara Calvert, head of U.S. policy at Coinbase. “It’s the first bill that explicitly contemplates how to think about decentralization, how to think about something that moves from looking like a security to looking like a commodity.”

Calvert added that the bill would allow regulators to focus on creating rules for centralized tokens, thus enabling more efficient resource management rather than broad regulation by enforcement.

However, the bill has faced significant opposition from House Democrats, led by House Financial Services Committee Ranking Member Maxine Waters (D-Calif.). Waters and House Agriculture Committee Ranking Member David Scott (D-Ga.) argue that the revised bill would lead to a mass deregulation of both crypto and some traditional securities, creating a regulatory void with no primary regulator and minimal laws or regulations. They contend that this could result in widespread fraud with devastating consequences for consumers and investors.

“The revised bill’s definition of ‘digital assets’ and the inclusion of ‘investment contract assets’ would effectively deregulate most crypto by removing them from the purview of the SEC,” the Democratic lawmakers stated in a letter. They also expressed concerns that making the CFTC the primary regulator would not afford consumers and investors the same protections as under the SEC.

As the House prepares for the pivotal vote on Wednesday, the crypto industry remains hopeful for a favorable outcome, which could mark a significant milestone in the regulatory landscape and further solidify the industry’s place in the financial market. However, the bill’s fate in the Senate remains uncertain, and the industry will be watching closely to see how these developments unfold.

Digital Assets Desk

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