Crypto Deregulation: From Bad to Worse

Understanding the Key Differences Between the CLARITY Act and FIT 21

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Introduction

This yr, the crypto industry’s legislative push mirrors a lot of last yr’s missteps, however the deregulatory measures within the Digital Asset Market Clarity Act of 2025 (H.R. 3633), also referred to as the CLARITY Act, take things a step further than the previous Financial Innovation and Technology for the twenty first Century Act (H.R 4763 or FIT 21). The CLARITY Act’s approach to deregulation worsens most of the significant flaws present in FIT 21.

The Federal Seal of Approval

Both the CLARITY Act and FIT 21 essentially endorse the crypto industry at a federal level. This endorsement risks embedding the industry’s notorious volatility, fraud, and money laundering into the economic system without adequate consumer or market safeguards. By giving the crypto sector federal recognition, these bills could allow crypto risks to flood the financial sector, posing systemic risks which may threaten economic stability.

FIT 21: A Weak Framework

FIT 21 attempted to set a regulatory framework for cryptocurrencies and digital assets but fell short. It promised less protection for crypto investors against industry exploitation and systemic risks. Furthermore, it posed a risk to broader financial market regulations, extending beyond just crypto.

CLARITY Act: Escalating Deregulatory Concerns

The CLARITY Act not only amplifies FIT 21’s deregulatory issues but in addition introduces broader exemptions and reduces oversight further. This opens the door for more scams and illicit financial activities, placing consumers and the economic system at even greater risk than before. In essence, the CLARITY Act takes the industry’s deregulatory ambitions from bad to worse.

DeFi: Regulatory Exemptions Galore

Decentralized finance (DeFi) is fraught with risks that may harm consumers, investors, and the financial markets. These include vulnerability to cyberattacks, exploitative products, and money laundering exposure. FIT 21 left the regulation of DeFi platforms and intermediaries vague, granting temporary exemptions from oversight bodies just like the Commodity Futures Trading Commission (CFTC).

The CLARITY Act, nonetheless, fulfills the DeFi sector’s wish list, giving broad exemptions to a wide selection of DeFi actors from traditional regulatory obligations. This means large parts of this industry will operate with minimal federal oversight, leaving investors largely unprotected. DeFi platforms, already rife with scams, will likely turn out to be breeding grounds for much more predatory activities, impacting centralized exchanges attributable to the interconnected nature of the crypto industry.

Loopholes for Crypto Assets and Trading

Both FIT and CLARITY claim to deal with a supposed regulatory gap within the crypto spot market. However, this gap is exaggerated. In reality, most digital assets could fit under existing securities or derivatives frameworks. FIT tried to deal with this gap by radically altering financial regulations, allowing for a fast-track process to categorize crypto assets as commodities. This undercut the SEC’s authority and its robust investor protections.

While FIT was flawed, it still allowed for some oversight through the CFTC. CLARITY, however, exempts a broad set of crypto assets, like meme coins and non-fungible tokens, from oversight, declaring them neither securities nor commodities. This leaves investors with little to no protection when coping with these speculative assets. Recent amendments to the bill offer minimal investor protection, failing to deal with core criticisms meaningfully.

Reduced Oversight for Crypto Securities

FIT 21 already weakened oversight by allowing many crypto assets to fall under a less stringent commodities framework, while making a lenient path for those remaining assets under securities law. Issuers could sidestep traditional disclosures, often reserved for personal offerings, and sell to retail investors with fewer protections.

CLARITY doubles down on this lenient approach, further delaying disclosures and allowing issuers to lift more capital over an extended period. This creates an imbalance of data, with issuers retaining significant control and selling to potentially less-informed retail investors. While it appears to supply SEC oversight, it lacks substantive protections and primarily advantages crypto firms and enterprise capitalists who lobbied for these changes.

Conclusion

Crafted by and for the crypto industry, the CLARITY Act builds on FIT 21’s deregulatory concessions, offering a weak, loophole-filled framework. It advantages crypto firms and wealthy investors on the expense of broader investor protections, increasing risks of fraud and money laundering. The bill exposes crypto investors and the economic system to heightened risks without the needed safeguards to curb industry predation.

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