The U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT 21) on Wednesday, establishing a new regulatory framework for cryptocurrencies. The bill passed with a vote of 279-136, receiving support from 71 Democrats and 208 Republicans, despite opposition from SEC Chair Gary Gensler and the White House.

The FIT 21 Act aims to clarify the regulatory landscape for digital assets by distinguishing when they should be overseen by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC). Under the new framework, digital assets operating on a "functional and decentralized" blockchain would be classified as commodities regulated by the CFTC. Conversely, assets on blockchains that are "functional but not decentralized" would be considered securities, thus falling under SEC jurisdiction.

SEC Chair Gary Gensler has been a vocal critic of the bill, arguing that it would undermine decades of regulatory precedent and create gaps in oversight. "The crypto industry's record of failures, frauds, and bankruptcies is not because we don't have rules or because the rules are unclear," Gensler stated before the House vote. "It's because many players in the crypto industry don't play by the rules."

The bill's passage marks a significant milestone for the crypto industry, which has long sought clearer regulatory guidelines. Sheila Warren, CEO of the Crypto Council for Innovation, called the vote a "defining moment for the crypto industry," adding that there is "a feeling of positive momentum throughout DC."

House Financial Services Chair Patrick McHenry (R-N.C.) emphasized that the bill provides much-needed clarity in a regulatory environment where the SEC and CFTC are "in a food fight for control of these asset classes." He argued that FIT 21 creates "a regulatory framework that will provide clear rules of the road and strong guardrails for Americans engaging with the digital asset ecosystem."

However, the legislation faces an uncertain future in the Senate, where no counterpart bill exists, and support remains unclear. Additionally, the White House issued a statement opposing FIT 21, citing a lack of "sufficient protections for consumers and investors," but did not explicitly threaten a veto.

Rep. Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, voiced strong opposition to the bill on the House floor. "This is a bill where the crypto companies decided they didn't like the SEC, they did not want to be regulated, and they were going to come to the Congress of the United States, and they were going to use their power and they were going to use their employees to change the rules of the game," Waters said.

Gensler's objections to the bill include concerns that it would allow issuers to self-certify their products as decentralized, effectively removing them from SEC oversight and placing them under the CFTC's "light touch regulatory regime." He argued that such a move would abandon the Supreme Court's long-standing test for classifying securities and weaken investor protections.

Despite these criticisms, supporters of the bill, including Rep. French Hill (R-Ark.), contend that it does not create a lenient regime for bad actors in the crypto industry. "This bill does not create securities loopholes. This bill does not deregulate crypto," Hill stated. He emphasized that the legislation addresses the confusion and overlap between the SEC and CFTC's regulatory responsibilities.

The House's approval of FIT 21 reflects growing bipartisan recognition of the need for a comprehensive regulatory framework for digital assets. Kristin Smith, CEO of the Blockchain Association, highlighted the bipartisan nature of the vote, stating that it "signals that lawmakers on both sides of the aisle recognize the immense potential of blockchain technology and digital assets, while also acknowledging the need for regulatory guidelines to enable responsible innovation and prioritize consumer safeguards."

As the bill moves to the Senate, its future remains uncertain. The necessary committees have not yet conducted the same level of work on crypto regulation, and support for similar legislation is not clearly defined. Nonetheless, the passage of FIT 21 in the House represents a significant step toward establishing a clearer regulatory environment for the burgeoning digital asset industry.