Mr. Rajagopal Menon, Vice President, WazirX
The Crypto-verse has been abuzz for the last two days as the bipartisan Crypto Regulation Bill Passed in the Congressional Committee, a major step towards the regulation of virtual digital assets in the country.
The US, which boasts the largest consumer base for crypto, is currently grappling with uncertainty due to the SEC’s relentless crackdown on crypto operations. This has significantly impeded progress in terms of regulatory developments, the adoption environment, and the support from financial institutions in providing liquidity for virtual digital assets. In stark contrast, the EU, the UK, Hong Kong, Dubai, and Singapore, have been steadily cultivating thriving ecosystems for crypto. Their proactive approach has even enticed crypto entrepreneurs in the USA to consider relocating their operations to these countries for smoother functioning. However, there is a glimmer of hope on the horizon in the form of the Fit Act, which aims to bring the US on par with other nations that have implemented forward-looking crypto regulations.
The primary objective of this bill is to clearly define boundaries for oversight of the industry between the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) and remove any ambiguity which might cause differences in verdict or uncertainty for stakeholders.
Amid the SEC’s ongoing exercise of authority over the Crypto industry, the Ripple verdict has ignited hope within the community. This first-of-its-kind positive judgment has raised expectations for additional scrutiny of lawsuits and the possibility of more favorable verdicts in the future. This bill, which marks the first-ever congressional vote on the matter, has boosted the ecosystem’s hopes further.
Separating tokens issued by Crypto projects from traditional securities was a significant step as organizations in the US, such as major exchanges, were reeling under regulatory pressure from the Securities and Exchange Commission on accusations that they were issuing unregistered securities.
By embracing the fundamental principles of Web3, the bill has established essential standards of decentralization for projects that lay claim to such principles. This crucial step will guarantee that centralized Crypto projects can only operate within defined legal parameters, eliminating undue control by project founders. This measure is pivotal in addressing the industry’s past issues, such as collapses and fund misappropriation, which occurred last year. Decentralized projects will also have all incentives and perks of an organization that qualifies the norms set by the bill. This also sets hopes for the legitimacy of the ecosystem which has faced doubts, criticism, and dismissal.
Another important factor that the bill took into consideration is ceasing illicit financing through Crypto and eliminating bad actors who use digital assets to avoid sanctions. The House Agriculture Committee is scheduled to review the Financial Innovation and Technology for the 21st Century Act to address the status of digital assets in the U.S.
However, the US House Financial Services Committee could not reach an agreement on regulation of stablecoins. Since these assets are pegged to traditional finance, a decision on the same would have been a huge win. But the industry continues to keep its hopes up for clarity on the same.
The bill has also taken into consideration the aspects of user protection which became a huge concern as projects continued to fail or default last year. However, the bill has not been fully supported by the Democrats who do not seem convinced by the extent of its influence on consumer protection or maintaining a balance between favorable moves for investors and industry leaders. It might also face opposition from Democrats in the process of becoming a law and may go through further amendments that both parties agree on to usher in a transparent and secure ecosystem.
A crucial aspect of this bill has been the consistent dialogue between pro-Crypto leaders, ecosystem experts, and regulators. This helped lawmakers understand the rapidly evolving nature of virtual digital assets, how their nature affects their classification, and how the same regulations for TradFi and DeFi will not work in the best interests of the stakeholders. While it is still premature to celebrate, as the bill must undergo further reviews before formal adoption, it undeniably establishes a significant precedent. Countries that have been skeptical of digital assets can now take inspiration from this approach and engage in regular dialogue with industry leaders to get a detailed lay of the land.