• President Trump’s Executive Order on January 23, 2025, which established a Working Group to review current regulations and tasked the Working Group with proposing a federal regulatory framework governing the issuance and operation of digital assets, including stablecoins;
• The SEC’s creation of a crypto Task Force focused on developing a comprehensive and clear regulatory framework for crypto assets;
• The SEC’s rescission of Staff Accounting Bulletin 121 (SAB 121), which had directed financial institutions to categorize custodied crypto assets as liabilities on their balance sheet;
• The introduction of legislation in the House and Senate governing stablecoins; and
• The CFTC’s announcement that it will host a forum to discuss the launch of a digital asset pilot program for tokenized non-cash collateral such as stablecoins.

Aside from the stablecoin legislation, these efforts indicate a dedication to the notion that the United States can do much to promote the growth of the digital economy within the existing legal framework. For example, by rescinding SAB 121, the SEC removed a significant hurdle restricting financial institutions from acting as custodians for crypto assets that was not required by statute.¹

Additionally, SEC Commissioner Hester Peirce indicated that the SEC’s Task Force will explore possible regulatory changes in order to provide (among other things) temporary relief for coin and token offerings, a viable pathway for registration of token offerings and a regulatory framework for investment advisers to take custody of client crypto assets.²

These would all be helpful changes for the U.S. digital asset industry but they may not be able to address some of the most significant structural issues that have complicated its growth. For example, while the SEC could issue regulations, no-action letters or interpretations outlining which digital assets are or are not securities (either on a case-by-case basis or by defining the contours of a digital asset security), such actions could be reversed by a future administration and would not govern how a future administration would categorize future digital assets. Additionally, there is no guarantee that a court would agree with the SEC’s interpretation given that the overly broad Howey test is still the guiding caselaw as to the definition of a security.

Moreover, the CFTC cannot currently implement a regulatory framework for spot or cash-market digital assets that are commodities (as advocated for by many market participants) because it only has regulatory jurisdiction over commodity derivatives.

Potential legislative solutions

For these reasons, perhaps one of the most significant and lasting developments would be if Congress passes legislation that creates a well-defined and workable market structure for digital assets, and early signs indicate that this is a real possibility. On February 4, 2025, for example, Senator Bill Hagerty (R-TN) introduced bipartisan legislation that would establish a U.S. regulatory framework for payment stablecoins,³ and Representatives French Hill (Chairman of the House Financial Services Committee) and Bryan Steil introduced a counterpart bill in the House of Representatives on February 5, 2025. According to Senate Banking Chair Tim Scott (R-SC), there are hopes to pass this legislation within President Trump’s first 100 days in office.

Additionally, there is renewed optimism that Congress will pass broader crypto legislation this term that would define the contours of the crypto market structure. For example, David Sacks, President Trump’s so-called AI and Crypto Czar, indicated on his “All-In” podcast that such legislation could be completed in the next six months.

It is still uncertain what such legislation will look like, but in a joint press conference with Mr. Sacks on February 4, Representative Hill indicated his expectation that any upcoming legislation would make only “minor changes” to FIT21, which was introduced last session by Representative Glenn Thompson (R-PA). If signed into law, this would create a monumental shift in the regulatory landscape for digital assets, so we describe FIT21 and what we can expect to be included in any upcoming legislation, below.

Background on FIT21

Passed by the House in 2024 with bipartisan support, FIT21 aimed to create a much-needed regulatory framework for digital assets by defining the regulatory jurisdiction, roles and required coordination between the SEC and CFTC related to digital assets. Most importantly, the bill sought to establish clear guidelines for when a digital asset would be classified as a commodity versus a security and assigned regulatory jurisdiction over digital commodities to the CFTC and regulatory jurisdiction over “restricted digital assets” to the SEC. The bill would largely exclude stablecoins from both the CFTC’s and SEC’s jurisdiction, except in cases of fraud, platform-traded contracts or transactions with registered entities.

The bill was passed in the full House by a vote of 279–136, with 71 Democrats and 208 Republicans voting in favor. However, it stalled in the Senate and, in any event, was opposed by President Biden.

Substance of FIT21

In essence, FIT21 sought to clearly allocate authority over crypto assets between the CFTC and SEC and establish registration, disclosure and compliance obligations for the industry. While regulation is often seen as costly and as an interference, many in the crypto industry in particular have long sought clear regulatory guidance so there is a pathway to compliance.

1. Commodity vs. security

Under FIT21, a digital asset would be considered a “digital commodity” subject to the CFTC’s jurisdiction if the blockchain network on which it runs is “functional” and “decentralized.” The bill would provide the CFTC with exclusive regulatory authority over cash or spot markets for digital commodities. Conversely, a digital asset would be considered a “restricted digital asset” subject to the SEC’s jurisdiction if the blockchain network on which it is run is functional but not decentralized.

A blockchain would be considered “functional” if the network allows market participants to use the network for: (1) transmission and storage of value; (2) services running on the blockchain system; or (3) participation in the network’s governance system. A blockchain would be “decentralized” if, among other things, no person has unilateral authority to control the blockchain or its usage, and no issuer or affiliated person has control of 20% or more of the digital asset or the voting power of the digital asset.

Which category a digital asset fits into, however, can change over time and depends on who is holding the asset. For example, digital assets sold prior to the launch of a functioning blockchain network (such as an “initial coin offering”) would be considered “restricted digital assets” and subject to disclosure-based regulations (discussed below) similar to that of traditional securities offerings. However, later in the project’s life, it is possible that the digital asset would become a digital commodity, assuming increased levels of third-party participation in the network and the absence of control by the original issuer and/or project team.

Relatedly, the bill proposed a self-certification process whereby a person could file a certification with the SEC that the blockchain network underlying a digital asset is decentralized (i.e., that the digital asset is a digital commodity rather than a restricted digital asset). The SEC and CFTC were directed to engage in joint rulemaking on the self-certification criteria.

FIT21 also would generally exclude the users and operators of true decentralized finance (DeFi) networks from the registration and regulatory requirements described below. However, FIT21 would require the CFTC and SEC, as well as the Comptroller General, to conduct various studies into DeFi and report back to Congress with the results of those studies within one year.

2. Registration requirements for intermediaries

FIT21 would require various market participants to register as intermediaries with the SEC and CFTC. Specifically, the bill would adopt definitions similar to the broker and dealer definitions from the Securities Exchange Act of 1934, and require entities that satisfy the definitions (with respect to restricted digital securities) to register as digital asset brokers or digital asset dealers. Interestingly, though, for intermediaries involved in CFTC-regulated digital commodity transactions, the registration triggers would be quite different from those historically seen by the CFTC or SEC.

Under FIT21, a “digital commodity broker” would be a person or entity who engages in soliciting or accepting orders for digital commodities from retail participants or to be executed on an exchange, and a “digital commodity dealer” would be a person or entity who acts as a dealer (similar to a swap dealer), but would exclude persons or entities who engage in such activity solely with non-retail participants or on an exchange. This is interesting because the nomenclature of “broker” and “dealer” is closer to that under the Securities Exchange Act than is typical for the Commodity Exchange Act (CEA), but also because the CEA and CFTC regulations do not currently exempt entities from registering – whether as futures commission merchants, swap dealers, introducing brokers, etc. – merely because they deal only with institutional clients or engage in off-exchange transactions.

Importantly, FIT21 would also require entities that fall within the definition of a commodity pool operator or commodity trading advisor, but with respect to digital commodities (i.e., spot or cash-market assets), to register with the CFTC unless an exemption is available. Unlike digital commodity brokers and dealers, though, there would be no exclusion for operators or advisors who limit their clients or customers to non-retail participants.

Finally, FIT21 sets forth requirements for custodians of restricted digital assets and digital commodities and requires digital asset brokers and dealers, futures commission merchants, digital assets trading systems and digital commodity exchanges to hold customer assets in a qualified custodian.

3. Registration requirements for platforms and clearing agencies

FIT21 would also require platforms and clearing agencies involved with restricted digital assets of digital commodities to register with the SEC and/or CFTC, respectively. For SEC-regulated products, platforms would register as “digital asset trading systems” and for CFTC-regulated products, exchanges or platforms would register as “digital commodity exchanges.”

The definition and requirements for digital asset trading systems are quite different from those applicable to national securities exchanges or alternative trading systems. However, the statutory language applicable to digital commodity exchanges is similar to those applicable to both swap execution facilities and designated contract markets (i.e., CFTC-registered futures exchanges).

Importantly, digital asset trading systems would be required to hold customers’ restricted digital assets with a qualified custodian (although it would appear to permit a digital asset trading system also to be a qualified custodian). Similarly, digital commodity exchanges would be required to hold digital commodities that are customer property with a qualified custodian.

4. Disclosure requirements

For digital assets listed on CFTC- or SEC-regulated trading platforms, and in certain other instances, the bill would require disclosure and certification of information relating to a digital asset or its related blockchain network’s (1) source code, (2) digital asset economics (i.e., “tokenomics”), (3) plan of development, and (4) affiliates and related persons with rights to units of the digital asset as well as a description of material risks related to ownership of the digital asset.

What’s next?

In the near term, we expect that the President’s Working Group, the CFTC and SEC will likely push forward with performing studies, making recommendations and implementing targeted regulatory and administrative changes to permit the crypto markets to better develop. For example, certain members of the President’s Working Group have been charged with preparing an inventory of regulations, guidance and orders affecting the digital asset sector by February 22, 2025 and with preparing recommendations for ways such rules can be modified to advance the President’s policies and priorities by March 24, 2025.

We also expect the CFTC and SEC to reverse their policies of bringing novel enforcement actions against crypto market participants, which some have called “regulation by enforcement.”

However, regulators and legislators are actively thinking about how the new market landscape should be shaped with the hope and expectation of passing legislation that will provide clarity and a framework for the U.S. digital asset industry. The initial focus appears to be on stablecoin legislation, but legislation directed at the broader digital asset industry will likely follow shortly.

Many market participants are taking this opportunity to meet with relevant regulators and legislators to explain complications with the current market structure and potential solutions that can be included in new regulations or legislation. Therefore, now is perhaps the best time in recent memory for advocacy as to what is the best path forward for a new legal and regulatory landscape.

1. See Staff Accounting Bulletin No. 122, Release No. SAB 122 (Jan. 23, 2025) (“an entity that has an obligation to safeguard crypto-assets for others should determine whether to recognize a liability related to the risk of loss under such an obligation, and if so, the measurement of such a liability”).
2. See Commissioner Hester Peirce, The Journey Begins (Feb. 4, 2025), available online.
3. See Guiding and Establishing National Innovation for U.S. Stablecoins of 2025 (the “GENIUS Act”), S. ____ (Feb. 4, 2025).

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