CLARITY Act crypto law 2026 — FIT21 analysis

Executive Summary

The H.R. 4763 bill, the "Financial Innovation and Technology for the 21st Century Act" (FIT21), represents a pivotal attempt by the U.S. Congress to establish a comprehensive regulatory framework for digital assets. Its primary objective is to delineate jurisdiction between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) by introducing the criterion of "sufficient decentralization." This mechanism allows an asset to be reclassified from a security to a "digital commodity," fundamentally altering its legal status, disclosure requirements, and taxation. Despite bipartisan support in the House of Representatives, the bill faces significant opposition from the SEC and the White House, and its prospects in the Senate remain uncertain, making its passage in its current form unlikely.

Introduction

The purpose of this article is to provide a deep and critical analysis of the FIT21 bill, its legal mechanisms, potential consequences for market participants, and practical risks. Moving beyond a simple summary of provisions, this work focuses on unresolved issues, regulatory uncertainties, and adaptation strategies for investors and businesses.

The research methodology includes an analysis of primary sources—the text of H.R. 4763, official statements from the SEC, CFTC, and the White House, as well as relevant case law (SEC v. Howey, SEC v. Ripple). Practical recommendations and risk assessments are based on comparisons with international standards, such as the European MiCA regulation, and an evaluation of potential economic effects.

1. Legal Analysis: From the Howey Test to "Sufficient Decentralization"

FIT21 does not abolish the existing legal framework but rather creates a parallel regulatory system designed to eliminate the legal uncertainty exacerbated by recent court decisions.

1.1. Context: The Howey and Ripple Tests

The SEC's primary tool for determining security status remains the Howey Test (SEC v. W.J. Howey Co., 1946), which classifies an asset as an investment contract if there is an investment of money in a common enterprise with an expectation of profits derived from the efforts of others. The decision in SEC v. Ripple Labs (2023) introduced confusion by ruling that the same token (XRP) could be a security when sold to institutional investors but not when sold to retail buyers on the secondary market. This highlighted the inadequacy of existing norms and the need for legislative clarity.

1.2. Key Concepts of FIT21: "Digital Commodity" and Decentralization

FIT21 introduces a new asset classification:

• Digital Commodity: An asset functioning on a "sufficiently decentralized" network. It falls under the jurisdiction of the CFTC.

• Restricted Digital Asset: An asset whose blockchain has not yet achieved decentralization. It remains under the supervision of the SEC.

  According to Section 2(a)(13) of the bill, a network is considered decentralized if, during the last 12 months, no single person or affiliated group owned more than 20% of the tokens or possessed "unilateral authority" to control the blockchain.

1.3. Analysis of the "20%" Criterion and Its Practical Risks

While the 20% criterion and the concept of "unilateral authority" are steps toward specificity, they leave room for manipulation and evasion.

• Practical Loopholes: Large holders could formally split token ownership among multiple legal entities or use informal agreements to coordinate voting while remaining below the 20% threshold.

• Under-defined Elements: The bill does not offer a clear methodology for measuring "unilateral authority." How should control over key smart contracts, the ability to upgrade the protocol, or influence over on-chain governance be assessed?

  For an objective assessment of decentralization, additional metrics must be considered: token vesting schedules, the distribution of voting rights in DAOs, and the degree of developer control over critical network infrastructure.

1.4. Certification Procedure: Mechanism and Potential Issues

FIT21 proposes a formalized process for transitioning an asset from SEC jurisdiction to CFTC jurisdiction:

1. Application to the SEC: The issuer files a certification that the network is decentralized.

2. Review Period (90–180 days): The bill suggests established timelines for the SEC to make a decision. However, the source of these timelines and the mechanism for their enforcement are not entirely clear, which could lead to delays.

3. Transfer of Jurisdiction: If approved, the asset moves under CFTC oversight.

   This procedure creates a potential conflict of interest, as the SEC—initially skeptical of the industry—is given the power to decide when to relinquish its control. This could lead to litigation and requires the development of clear joint regulations between the SEC and CFTC to ensure impartiality.

2. Consequences for Market Participants

2.1. New Rules for Exchanges and Custodians

FIT21 introduces a dual registration regime for platforms dealing with both digital commodities (CFTC registration) and securities (SEC registration). A key requirement of Section 302 is the mandatory segregation of customer assets. This is a direct consequence of the FTX collapse, aimed at protecting user funds from being misappropriated by platforms.

2.2. Tax Implications and Regulatory Uncertainty

Asset classification directly impacts taxation.

• Wash Sale Rule: This rule prevents taxpayers from claiming a loss on the sale of a security if a "substantially identical" asset was purchased within 30 days before or after the sale.

  Impact of FIT21: Classifying a token as a "digital commodity" would strengthen the argument that it is not subject to the wash sale rule, providing investors with flexibility in tax-loss harvesting.

  Important Caveat: The U.S. Internal Revenue Service (IRS) position on this matter is not final. The application of the wash sale rule to crypto assets remains a subject of debate. Future IRS regulations or judicial precedents could change current practices regardless of FIT21's passage. Investors should act with caution and consult with tax professionals.

3. Extended Analysis: Stablecoins, State Law, and Economics

3.1. Stablecoin Regulation

FIT21 intentionally leaves stablecoin regulation out of its scope, assuming this issue will be addressed by a separate bill—the Clarity for Payment Stablecoins Act. That document focuses on requirements for issuers, including mandatory 100% backing by highly liquid assets (cash or short-term government bonds) and oversight by federal banking regulators. Thus, FIT21 creates rules for the trading of assets, while the stablecoin act governs their issuance and collateralization.

3.2. Interaction with State Law and Other Federal Norms

FIT21 seeks to create a uniform federal standard; however, its interaction with existing state laws (e.g., New York's BitLicense) is not clearly defined. This could lead to legal conflicts and double regulation. Furthermore, the bill must be reconciled with banking laws and Anti-Money Laundering (AML/CFT) standards, which are tightening at the federal level (e.g., FinCEN initiatives against crypto mixers).

3.3. Economic Impacts

• Positive: Regulatory clarity could increase liquidity in the U.S. market, stimulate the listing of new assets on exchanges, and attract institutional capital.
• Negative: High compliance costs (dual registration, legal support for certification) could become a barrier for startups and small projects, potentially stifling innovation and driving them to other jurisdictions.

4. Practical Case Studies and Their Lessons

• Case 1: The FTX Collapse (2022). Demonstrates the critical importance of customer asset segregation—a norm that FIT21 makes mandatory.
• Case 2: Ethereum (ETH). An ideal example of an asset that could have transitioned from a "restricted digital asset" (during the ICO stage) to a "digital commodity" after achieving decentralization.
• Case 3: SEC v. Ripple (XRP). Illustrates the legal vacuum FIT21 is intended to fill by replacing contradictory judicial interpretations with a single legislative mechanism.

5. Practical Recommendations: Action Checklists

5.1. For Crypto Projects and Token Issuers

Step	Action	Responsible Party	Timeline
1	Audit token distribution	Legal, Compliance	Immediately
2	Develop a decentralization roadmap	CTO, Product	Q3 2024
3	Publish transparency reports	Investor Relations	Quarterly
4	Prepare documentation for certification	Legal	When ready

5.2. For Exchanges and Custodians

Step	Action	Responsible Party	Timeline
1	Assess readiness for dual registration	Compliance, Legal	Q3 2024
2	Implement technical solutions for asset segregation	Engineering	Q4 2024
3	Review listing policies based on FIT21 criteria	Listing Dept, Risk Management	Q4 2024
4	Strengthen AML/CFT procedures per new requirements	Compliance	Ongoing

6. Legislative Outlook and Probability of Adoption

The passage of FIT21 in its current form faces serious obstacles.

• Support: Bipartisan majority in the House of Representatives, lobbying from the crypto industry. Arguments: the need for innovation and keeping business in the U.S.
• Opposition: SEC Chair Gary Gensler, influential Senate Democrats (e.g., Elizabeth Warren), and the official White House position. Arguments: the bill weakens investor protection and creates regulatory loopholes.
• Probability: Passage through the Senate in 2024 is unlikely. However, the bill lays the groundwork for future negotiations and possible compromises. It is most likely that its key provisions (e.g., jurisdictional boundaries and asset segregation) will become part of future, more balanced legislation.

Conclusion

FIT21 is the most serious attempt to date by the U.S. to systematize the regulation of digital assets. It offers an innovative, albeit imperfect, mechanism for delineating the powers of the SEC and CFTC. However, the bill leaves important questions unanswered regarding practical risks of rule evasion, interaction with other laws, and procedural safeguards.

Regardless of its fate, the trend toward stricter regulation is clear. Market participants should not wait for the final passage of the law but should proactively implement best practices: ensure the segregation of customer assets, strive for genuine decentralization of governance, and strengthen compliance procedures. These steps will be the key to resilience in the new regulatory reality.

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Glossary

• AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism): Measures to prevent money laundering and terrorist financing.
• FinCEN (Financial Crimes Enforcement Network): A bureau of the U.S. Department of the Treasury that combats financial crimes.
• VASP (Virtual Asset Service Provider): Any entity that provides services related to virtual assets.
• Wash Sale Rule: A tax rule prohibiting the recognition of a loss on the sale of a security if an identical security was purchased within 30 days before or after the sale.

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Sources

• Last Updated: June 19, 2024
• Sources:

1. Text of H.R. 4763 (FIT21). Congress.gov.
2. Statement of Administration Policy on H.R. 4763. The White House.
3. Statement of SEC Chair Gary Gensler on FIT21. U.S. Securities and Exchange Commission.
4. FinCEN Proposal on Special Measures against Crypto Mixers. FinCEN.
5. SEC v. W. J. Howey Co., 328 U.S. 293 (1946).
6. SEC v. Ripple Labs, Inc., No. 20-cv-10832 (S.D.N.Y. Jul. 13, 2023).
7. IRS Notice 2014-21. Internal Revenue Service.
8. Regulation (EU) 2023/1114 (Markets in Crypto-assets, MiCA). Official Journal of the European Union.