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Democrats Urge Caution but Won’t Enforce ‘No’ Vote on Crypto Bills

House Democrats

Two pro-crypto bills set for vote this week do not have to be blocked by House Democrats although their leaders recommend doing so, a leaked email reveals.

Democrats Voice Concerns Over FIT21 and CBDC Bills

A May 20 Democratic leaders’ email to House members, obtained by POLITICO, shows that the party is not whipping the vote against the Republican-led Financial Innovation and Technology for the 21st Century (FIT21) Act and the CBDC Anti-Surveillance State Act (H. R. 4763 and H. R. 5403). This legislation is considered positively in the crypto industry.

The FIT21 Act seeks to outline a better approach for determining whether a cryptocurrency is a commodity or a security, giving most regulatory power to the Commodity Futures Trading Commission (CFTC). Robust support was shown for FIT21 by 60 companies´ crypto industry in a letter of May 16 urging the House to pass the bill.

In contrast, the CBDC Act is aimed at prohibiting the Federal Reserve from creating a Central Bank Digital Currency (CBDC), a move that has attracted the criticism of some of the Democratic leaders. Waters and Scott in plain language declared on FIT21 that they stand against it, the former also opposing the CBDC Act. Waters and Scott’s letter, later obtained by POLITICO, requests a vote against FIT21.

Legal and Economic Implications Highlighted by Democratic Leaders

Democratic leaders took issue with the FIT21’s element allowing digital commodities to be traded in secondary markets if they were originally marketed as an investment contract security. They contend that this erodes the fundamentals of established legal precedents, leading to instability in conventional securities markets.

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“This language erodes years of legal precedents and case law, thus introducing confusion into our tried and true securities market,” the email said. Moreover, it was mentioned that investors’ protection would become less strong and market manipulation would be possible as the bill grants a “safe harbor” that might protect entities from regulatory review until the rules are updated by SEC and CFTC.

As to the CBDC Act, Democratic leadership thinks that not allowing for the creation of a CBDC may lead to the loss of the U.S. dollar dominance worldwide. They caution that other countries that develop their CBDCs may, in turn, evade sanctions, and the Congressional Budget Office (CBO) emphasized that the broad definition of CBDC in the bill may impede the monetary policy efforts of the Federal Reserve.

Impending Debate and Vote

According to POLITICO’s Eleanor Mueller, floor discussion and passage of FIT21 are expected on Wednesday, May 22. Despite the resistance of the key Democratic leaders, the party will not whip a block ‘no’ vote against these bills.

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