House Republicans Introduce FIT21 Bill to Clarify Bitcoin Exchange Regulations

The House Republicans introduced a legislative discussion draft on May 5, 2025, titled the Financial Innovation and Technology for the 21st Century Act (FIT21). This bill aims to establish new regulations for bitcoin exchanges in the U.S., addressing long-standing regulatory uncertainties surrounding digital assets. The draft, a revision of the 2024 version of FIT21, was developed through joint efforts by the House Financial Services Committee and the House Agriculture Committee. It seeks to balance innovation and consumer protection by clearly defining the roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

The updated FIT21 bill introduces a clear division of responsibilities between the SEC and CFTC based on the functionality and decentralization of digital assets. Assets deemed decentralized by the CFTC will be classified as digital commodities and regulated by the CFTC, while centralized assets will remain under the SEC's jurisdiction as restricted or unregistered assets. This distinction aims to provide a more structured regulatory framework for digital assets, including Bitcoin and altcoins, as well as exchanges.

One of the most significant changes in the updated bill is the replacement of the SEC’s role in certifying decentralization with a new regime called ‘mature blockchain.’ This regime will determine and maintain the decentralized nature of a network on a permanent basis, shifting towards a more dynamic and pragmatic regulatory approach. Tokens that meet decentralization requirements will be treated as commodities, streamlining the regulatory process and providing clarity for projects seeking to operate within the U.S. regulatory framework.

The bill also tightens rules governing affiliate sales to prevent insider control and ownership. Projects will be required to disclose important information, such as tokenomics, names of token holders, network development, and governance structures, every six months. These transparency requirements are designed to induce accountability in the Web3 space without stifling innovation, paralleling the reporting standards of public companies.

FIT21 aims to streamline the registration process for exchanges to operate as Digital Commodity Platforms under the CFTC. This agreement provides legal certainty, allowing platforms to list decentralized assets without the fear of SEC enforcement. Additionally, decentralized finance (DeFi) protocols with no central control may be exempt from registration with exchanges, benefiting open-source developers.

The bill provides a clear path for projects to achieve decentralization and for tokens to transition from SEC oversight to CFTC jurisdiction. To qualify, a project must have no controlling party, hold under 20% of insiders, and demonstrate true network utility. Regulators will be required to respond within 60 days to certifying projects as decentralized, providing much-needed certainty for the industry.

FIT21 also includes protections for secondary market trading. Trading platforms will treat tokens that evolve into decentralized assets as commodities, reducing legal risks. The bill ensures the future of secondary markets, addressing a significant pain point for the industry. Additionally, stablecoins and custody providers will be required to meet higher reserve mandates and provide clearer disclosures, promoting innovation while banning opaque operations. Non-custodial DeFi protocols that do not exercise discretion over user funds will be exempt from the same regulatory onus placed on centralized platforms.

The draft of FIT21 has been praised as a step away from the “regulation by enforcement” approach that has hindered U.S. crypto innovation. The bill could serve as a framework that provides regulatory clarity and encourages technological advancement, positioning the U.S. to take a leading role in the digital asset market. The full text of the bill is available for further details.