The Risks of Deregulating the Cryptocurrency Industry: A Call for Consumer Protection

Congress Passes FIT 21 Act, Deregulating Cryptocurrency Industry

Last month, a bipartisan majority of the House of Representatives passed a bill known as the Financial Innovation and Technology for the 21st Century Act, or FIT 21 Act, aimed at deregulating the cryptocurrency industry. The bill received 71 Democratic votes and is now headed to the Senate for consideration, where there appears to be bipartisan interest in the measure.

Despite opposition from the White House, which did not threaten to veto the legislation, the progress of the FIT 21 Act is causing concern among some experts. The bill’s passage could signal the arrival of an inadequate regulatory regime for the booming crypto economy.

Critics of the bill, including those with experience in financial regulation and consumer protection, are troubled by the bipartisan support for deregulating the crypto industry. They warn of the risks posed by lightly regulated financial instruments, citing instances of operational failures, market manipulation, fraud, theft, and scams within the crypto ecosystem.

While proponents of the bill argue that cryptocurrency has the potential to revolutionize payments, critics point out that it has not been widely used for consumer purchases or money transfers due to its volatility, high fees, and clunky technology. Additionally, concerns have been raised about its use in money laundering, sanctions evasion, and cybercrime.

The FIT 21 Act creates a special regulatory framework for companies and products utilizing crypto-based technologies, exempting them from certain investor protections and allowing decentralized technology systems to evade SEC authority. Critics fear that this light-touch approach could benefit fly-by-night crypto outfits, Big Tech companies, and Wall Street banks at the expense of consumer and investor protections.

Historical parallels are drawn to past financial crises, such as the 2008 financial crisis, where risky financial products exposed low-income and minority communities to predatory practices. Critics argue that deregulating the crypto industry could lead to similar risks and harm to vulnerable populations.

Despite the lack of widespread public interest in cryptocurrency, the industry’s substantial political and lobbying operation may be influencing Congress’s decision to provide special treatment to speculative products and technologies. Critics urge lawmakers to focus on more pressing financial policy issues, such as addressing predatory lending practices and protecting consumers and investors from harm.

As the FIT 21 Act moves to the Senate for consideration, the debate over deregulating the cryptocurrency industry continues to spark controversy and concern among experts and advocates for consumer and investor protection.