Just before the US Securities and Exchange Commission (SEC) approved the regulatory filing for an Ethereum ETF, the US House of Representatives passed the FIT21 bill, which provides guidance for US regulatory agencies to oversee cryptocurrencies.
Although there hasn’t been much discussion about this bill online, it actually has a profound impact on the future regulation of cryptocurrencies by the US government. It is also a bill that cryptocurrency project teams must carefully study before issuing assets in the US.
Here are some interesting provisions from the bill that I have excerpted:
The bill clearly defines two regulatory agencies for overseeing cryptocurrencies: the Commodity Futures Trading Commission (CFTC) and the SEC.
How do these two agencies regulate cryptocurrencies?
The bill stipulates that if a cryptocurrency is defined as a commodity, it falls under the jurisdiction of the CFTC. If it is defined as a security, it falls under the jurisdiction of the SEC.
But how do we determine whether a cryptocurrency is a commodity or a security?
The bill proposes several key elements to differentiate between digital assets as securities or commodities, including the “Howey Test,” “use and consumption,” “decentralization,” “functionality and technical characteristics,” and “market activities.”
Among these elements, except for decentralization, the definitions of the other factors are easily understood and fall within the traditional definitions of commodities or securities. Only “decentralization” is a new concept introduced by blockchain technology and cryptocurrencies.
How do we define “decentralization”?
The bill states that if, in the past 12 months, no one has direct control and the token/voting rights held do not exceed 20%, then it is considered decentralized.
This definition of “decentralization” actually provides a reference standard for us to speculate on potential targets that Wall Street institutions may aim for in the future.
The introduction of cryptocurrencies into traditional finance by Wall Street institutions in a compliant manner, attracting a wide range of investors, is an unstoppable trend. Bitcoin and Ethereum have already been successfully demonstrated by Wall Street institutions and have been incorporated into the US government’s regulatory framework. In the future, more and more cryptocurrencies will undergo similar operations by Wall Street.
In fact, clear and appropriate regulation can not only promote the healthy and long-term development of the cryptocurrency ecosystem but also drive the value and price of cryptocurrencies to rise steadily.
Therefore, I have always believed that there is no need to panic or resist such regulation. We should instead take a positive attitude towards rational and appropriate regulation. Frankly, I have a very positive view of Wall Street’s actions regarding Bitcoin and Ethereum ETFs (although I don’t like these institutions at all).
This is the perspective of Wall Street and regulation on this bill.
From the perspective of cryptocurrency project teams, how can we view this bill?
First of all, in the entire cryptocurrency ecosystem, assets like Bitcoin that do not rely on team operations are relatively rare. Most projects, like Ethereum, require development under the leadership of a team.
Therefore, any cryptocurrency project in the future must consider the potential regulations they may face when issuing their assets.
Among the SEC and CFTC, the CFTC’s regulations are more relaxed and accommodating. Therefore, for general project teams, unless they have specific purposes (such as issuing securities), they generally hope that the tokens they issue will be regulated by the CFTC.
If project teams want the tokens they issue to be considered “commodities” and regulated by the CFTC, then based on the provisions excerpted above, a unique standard in the cryptocurrency ecosystem is worth noting: “decentralization.”
For cryptocurrency ecosystem users, when we talk about “decentralization,” we generally emphasize the project’s resistance to monopoly influence and manipulation. In this bill, it has become an important criterion for defining whether a cryptocurrency is a commodity or a security.
According to this line of thinking, if project teams want their tokens to pass regulatory scrutiny as much as possible, they must focus on “decentralization” and at the very least, avoid monopolizing tokens and engaging in market manipulation and misconduct as they have done in the past.
As investors, how should we view this bill?
We can use it as a reference when evaluating investment targets.
For example, if a token is considered a commodity, we can assume to some extent that it is sufficiently “decentralized.” Conversely, if a token is sufficiently “decentralized” for users in the cryptocurrency ecosystem, we can also speculate that it is likely to be classified as a commodity and thus easily pass the scrutiny of the CFTC.
Using this standard, we can carefully examine popular blockchain tokens such as BNB, Solana, Aptos, SUI, MATIC, and classic ERC-20 tokens like UNI, CRV, MAKER, AAVE, as well as emerging inscription tokens like ORDI, SATS, etc. By considering other criteria such as investment contracts, use and consumption, functionality and technical characteristics, and market activities, we can at least make an educated guess about which tokens are likely to pass regulatory scrutiny more easily.
