FIT21: The Digital Asset Market Structure Act That Changed American Crypto Law

When historians write about the legislative origins of US digital asset regulation, they will mark May 22, 2024 as the date the logjam broke. On that day, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act — FIT21 — by a vote of 279 to 136. It was the first time either chamber of Congress had passed a comprehensive crypto market structure bill. The vote was not close. And it was bipartisan.

FIT21 did not become law. The Senate did not take it up before the 118th Congress ended, and President Biden had issued a veto threat. But its intellectual architecture — the way it tried to draw a coherent line between SEC and CFTC jurisdiction over digital assets — became the foundation for the CLARITY Act, which passed the House in July 2025 and is pending Senate consideration.

Understanding FIT21 means understanding the problem it was trying to solve: the decade-long regulatory vacuum that left every major crypto project uncertain about which agency had authority over it, and under what theory.

Origins: Emmer, McHenry, and a Problem That Demanded a Bill

FIT21 emerged from years of frustration in the Republican-led House Financial Services Committee and the House Agriculture Committee, which oversees the CFTC. Representatives Tom Emmer (R-MN) and Patrick McHenry (R-NC) were the principal architects, working alongside Representative Glenn Thompson (R-PA), who led the Agriculture Committee.

The legislative impetus was straightforward: the SEC under Gary Gensler had declined to provide regulatory clarity through rulemaking, preferring instead to bring enforcement actions against crypto companies — Coinbase, Kraken, Binance — and assert broad jurisdiction over digital asset securities. The CFTC, meanwhile, maintained that Bitcoin and Ether were commodities under its purview. The two agencies were operating under incompatible theories, and the industry was caught between them.

FIT21’s sponsors argued that Congress — not the SEC — should draw the jurisdictional line. The bill was their answer.

The SEC/CFTC Framework: Decentralization as the Dividing Line

FIT21’s most consequential contribution was its proposed test for determining which agency would regulate a given digital asset. The bill introduced a concept called “functional decentralization” as the dividing line between securities (SEC jurisdiction) and digital commodities (CFTC jurisdiction).

Under FIT21, a digital asset issued on a blockchain network would be treated as a digital commodity — and therefore regulated by the CFTC — if the underlying blockchain was “functional and decentralized.” A network would be considered decentralized if no single person or affiliated group controlled more than 20 percent of the digital asset or its voting power over the past 12 months, and if no issuer had unilateral authority to alter the network’s functions.

If a network did not meet this decentralization test, its digital asset would be treated as an “ancillary asset” — a new category that acknowledged the economic reality of assets that look like securities but function like currencies or commodities. Ancillary assets would remain under SEC jurisdiction, with reporting requirements designed for the crypto context rather than adapted from 1930s securities law.

This framework was a direct challenge to the logic underpinning much of the SEC’s enforcement strategy. The SEC under Gensler had applied the Howey Test — the 1946 Supreme Court standard for defining an investment contract — broadly to digital assets, arguing that most tokens represented an expectation of profits from the efforts of others, making them securities. FIT21’s sponsors argued the Howey Test was designed for orange groves and railroad bonds, not decentralized protocols, and that applying it to functional blockchain networks created regulatory absurdity.

Key Provisions

Beyond the central jurisdictional test, FIT21 contained several important operational provisions.

On customer protection, the bill required digital asset exchanges operating under CFTC jurisdiction to segregate customer funds, prohibit commingling with exchange assets, and maintain insurance or reserve requirements. This was a direct legislative response to the FTX collapse of November 2022, in which customer funds had been routinely transferred to the affiliated trading firm Alameda Research.

On disclosure, issuers of ancillary assets would be required to file regular disclosures with the SEC — quarterly reports on technology, network activity, financial condition — creating a transparency regime calibrated to the crypto context rather than the SEC’s standard quarterly and annual reporting frameworks designed for operating companies.

On transition, FIT21 created an “end-user exemption” allowing retail transactions in ancillary assets during a transitional period, avoiding the paralysis that would result from requiring every crypto transaction to comply immediately with new registration requirements.

Bipartisan Support and the Veto Threat

The 279-136 vote tells an important story. FIT21 passed with 71 Democratic votes — a significant number given that the bill was sponsored primarily by Republicans and that the Biden administration had issued a Statement of Administration Policy opposing the bill days before the vote.

The bipartisan vote reflected two things. First, genuine concern among some Democrats about the consequences of regulatory vacuum — companies leaving the US, innovation migrating to the EU and Singapore. Second, the political awakening driven by the crypto industry’s increasingly sophisticated legislative operations, including early mobilization of the Fairshake PAC, which would go on to raise $202.9 million for the 2024 election cycle.

The Biden veto threat cited the bill’s limitations on SEC jurisdiction and concerns about investor protection. Treasury Secretary Janet Yellen expressed similar reservations. The Senate Banking Committee, under Chairman Sherrod Brown (D-OH), did not schedule hearings on FIT21, effectively killing the bill for the 118th Congress.

Legacy: The Architecture That Survived

FIT21 did not survive the 118th Congress, but its architecture did. When the CLARITY Act was introduced in 2025 under a new Republican administration, it built directly on FIT21’s framework. The functional decentralization test survived in modified form. The ancillary asset concept was refined. The CFTC’s expanded jurisdiction over digital commodity spot markets — a significant departure from the CFTC’s traditional derivatives mandate — carried over.

The CLARITY Act passed the House 294-134 in July 2025, a larger majority than FIT21 achieved, reflecting the changed political environment following the 2024 election and the crypto industry’s demonstrated political power.

FIT21 mattered not because it became law, but because it proved that Congress could reach bipartisan agreement on a complex jurisdictional question that had stymied regulators for a decade. It established the intellectual and legislative vocabulary that made the CLARITY Act possible. In American legislative history, that is often how durable frameworks are built — through precursor bills that lose but teach.