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On Tuesday, May 20, French Hill, chairman of the Subcommittee on Digital Assets, Financial Technology, and Inclusion, Glenn “GT” Thompson, chairman of the House Agriculture Committee, and Dusty Johnson, chairman of the Subcommittee on Commodity Markets, Digital Assets, and Rural Development, introduced H.R. 4763, known as the Financial Innovation and Technology for the 21st Century Act (FIT21).

#### Overview of FIT21
The FIT21 Act is a legislative proposal aimed at establishing a regulatory framework for digital assets in the United States. Its primary goals are to provide regulatory clarity and consumer protection, thereby fostering innovation within the digital asset ecosystem. Initially introduced in June 2023, the bill received approval from both the Financial Services Committee and the Agriculture Committee (which oversees commodity-related laws) by May 2024, setting the stage for review by the full House of Representatives.

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#### Key Provisions of the FIT21 Act

1. **Regulatory Clarity**
   - The bill delineates the regulatory responsibilities between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
   - The CFTC will regulate digital assets classified as commodities if the underlying blockchain is functional and decentralized, while the SEC will oversee digital assets deemed securities if the blockchain is not decentralized.
   - A blockchain is considered decentralized if no single entity has unilateral control over it or its use, and no issuer or affiliated person controls 20% or more of the digital asset or its voting power.

2. **Consumer Protection**
   - FIT21 includes robust consumer protection measures, requiring digital asset developers to provide accurate project information and obliging institutions serving digital asset customers (such as exchanges, brokers, and dealers) to segregate client funds from their own and mitigate conflicts of interest through registration, disclosure, and operational requirements.

3. **Support for Innovation**
   - The bill offers a clear pathway for digital asset developers to raise funds and establishes a process to determine whether digital asset transactions fall under the SEC's or CFTC's jurisdiction.
   - The SEC must regulate a digital asset as a security if its associated blockchain is functional but not decentralized, with certain exemptions for assets that limit annual sales, restrict non-accredited investor access, and meet disclosure and compliance requirements.
   - It also sets requirements for primary and secondary market transactions and grants the CFTC exclusive regulatory authority over digital commodity markets.

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#### Criticisms from SEC Chairman Gary Gensler
If passed, the bipartisan FIT21 would mark a significant defeat for SEC Chairman Gary Gensler, who has consistently opposed cryptocurrencies. Critics, including investors and industry stakeholders, have criticized Gensler for his lack of clarity and engagement with key market participants like exchanges. While his stringent stance is seen as justified in a risky and unregulated market, his approach has often been viewed as obstructive.

In a post on the SEC’s website, Gensler argued that the FIT21 bill would create new regulatory gaps and undermine decades of investment contract oversight precedents, potentially endangering investors and capital markets. He contends that the bill would bypass the Howey Test, allowing crypto operators to "self-certify" their products, which could lead to inadequate regulatory oversight.

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#### Political and Regulatory Context
Gensler’s stance has led to a wave of regulatory demands on Capitol Hill. Recently, both houses of Congress voted to overturn the SEC's controversial cryptocurrency accounting guidance known as SAB121, which imposed new transparency and accountability requirements on entities (such as exchanges) handling crypto assets. 

Senator Cynthia Lummis, a pro-crypto Republican, hailed the overturning of SAB121 as a victory for financial innovation and a rebuke of the Biden administration and Gensler's approach to cryptocurrencies. Stuart Alderoty, Chief Legal Officer of Ripple, also criticized Gensler's leadership, suggesting he overstepped in his aggressive stance against the crypto industry.

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#### Implications of the FIT21 Act
Should the FIT21 bill pass, it would represent a major step forward in establishing a comprehensive regulatory framework for cryptocurrencies in the U.S. It would also signify a clear rebuke of Gensler’s handling of digital assets, potentially marking the beginning of a new regulatory approach that balances innovation with investor protection.