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US lawmakers pass a historic crypto bill without a single vote against, but critics are not convinced that it will lead to safer markets. A 23-year-old Taiwanese man faces life in prison after being accused of building a crypto-funded global narcotics market.
The US House of Representatives has passed a landmark crypto bill that aims to settle the question of jurisdiction between two rival regulators and bring clarity to the digital asset markets.
On Wednesday (May 22), the House passed the Financial Innovation and Technology for the 21st Century Act in a unanimous, bipartisan vote. Known as FIT21, the bill won support from 208 Republicans and 203 Democrats, with 25 abstentions from the two parties combined.
“It is past time for Congress to provide clear rules of the road for the digital asset ecosystem,” said Patrick McHenry (R-NC), co-sponsor of the bill and chair of the House Financial Services Committee.
“The American people deserve legislation to ensure consumer protection and allow innovation to thrive in this country.”
McHenry’s committee, in partnership with the House Committee on Agriculture, helped craft the bill and cleared it for a House floor vote following a markup vote in July last year, as covered by Vixio.
FIT21 lays out a clear rulebook for the issuance, custody and trading of digital assets. The bill introduces a new mechanism by which digital assets can become recognised as “digital commodities” rather than securities.
This will be achieved through an amendment to the Securities Exchange Act 1934, whereby token issuers will be invited to “certify” that their token is sufficiently “decentralised” to be a commodity.
If the digital asset meets the criteria, then it leaves the remit of the Securities and Exchange Commission (SEC) and enters that of the Commodity Futures Trading Commission (CFTC).
In order to class as decentralised, among other requirements, no digital asset issuer or affiliated person may own 20 percent or more of the total units of the digital asset.
“Under SEC chairman Gary Gensler's leadership, the US digital asset ecosystem has been mired by dysfunction and uncertainty,” the Republicans on the House Financial Services Committee said in a video statement.
“Woefully inadequate guidance and regulation by enforcement have led to turmoil in the marketplace, driving innovation offshore and jeopardising critical consumer protections.
“Under this bill, Americans can feel comfortable engaging with digital assets, knowing that this ecosystem is being brought under a time-tested regulatory umbrella.”
However, opponents of the bill have criticised it for opening up a new loophole that would allow firms to evade the US' stringent securities regulations.
Better Markets, a financial reform group, said the bill incentivises token issuers to represent themselves as “decentralised” to secure the lighter-touch supervision of the CFTC.
Cantrell Dumas, its director of derivatives policy, also questioned whether the smaller and “underfunded” CFTC has the resources to take on this new mandate.
“Without proper funding, adding more mandates to the CFTC will inevitably and significantly compromise the agency’s ability to fulfil its vital roles that all Americans depend on and benefit from,” said Dumas.
“Fully funding the CFTC should be the priority, and only then should any consideration be given to adding more work for the agency.”
Another key focus of the bill is consumer protection. FIT21 imposes comprehensive customer disclosure, asset safeguarding and operational requirements on all entities required to be registered with the CFTC and/or SEC.
Digital asset developers will be required to provide accurate, relevant disclosures, including information relating to the digital asset project’s operation, ownership and structure.
Meanwhile, digital asset customer-serving institutions, such as exchanges, brokers and dealers, must provide additional disclosures and must segregate customer funds from their own.
“If you believe in investor protection, if you believe we need to respond to the disaster of FTX, then we need to pass a bill that would prevent the next FTX,” said Mike Flood (R-NE).
“The status quo will not work. It didn’t work in 2022 and it won’t work today. That’s why we need the FIT for the 21st Century Act.”
US DOJ takes down crypto-funded illegal drug market
The alleged owner of one the world’s largest illegal drug markets has been arrested in the US and is now facing life imprisonment.
Rui-Siang Lin, 23, a Taiwanese national who goes by the nickname "Pharoah", was arrested at JFK Airport on May 18 and appeared in court in Manhattan two days later.
Lin is accused of being the owner of Incognito Market, a dark web narcotics market that accepted payments primarily in Bitcoin or Monero, an anonymising “privacy token”.
From the platform’s founding in 2020 to its closure in March this year, it is estimated to have sold more than $100m of narcotics, including hundreds of kilograms of cocaine and methamphetamine.
Incognito Market also had its own escrow service known as Live Bank, which jokingly referred to itself as "Formerly Lehman Brothers".
When a narcotics transaction was completed, Live Bank would transfer the cryptocurrency from the buyer’s account to the seller’s account, minus a 5 percent fee that Incognito kept for itself and its “employees”.
If convicted, Lin faces a mandatory minimum sentence of life in prison for engaging in a continuing criminal enterprise. He is also charged with narcotics conspiracy, money laundering and conspiracy to sell adulterated and misbranded medication.
“The adoption of cryptocurrency in the narcotics trade goes hand in hand with the rise of drug sales on the darknet,” said John Reed Stark, former head of internet enforcement at the SEC. “Thanks Bitcoin.”
