The crypto world is hoping to make some gains this week in Washington as it pushes for a new regulatory framework and new products that could expand its mainstream appeal.

The House is expected to vote Wednesday on legislation that would provide the kind of regulatory oversight the industry wants.

Separately, investors hope the Securities and Exchange Commission is close to approving the first exchange-traded funds that would invest directly in the cryptocurrency Ether (ETH-USD).

The main change proposed by the new legislation – known as the Financial Innovation and Technology for the 21st Century Act, or FIT21 – is that it would establish the Commodity Futures Trading Commission as a lead regulator of digital assets.

There would be clear divisions over what the CFTC will regulate and what would fall under the purview of the Securities and Exchange Commission, a longtime industry foe that has cracked down on traders with enforcement actions and lawsuits.

Rep. Patrick McHenry, R-N.C., lead sponsor of legislation that would offer a new regulatory framework for the crypto industry. (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)

It would also establish consumer protections and prevent the kind of commingling of customer funds that played a role in the destruction of cryptocurrency exchange FTX in late 2021.

The industry has been lobbying for this framework, which it would prefer over the SEC’s aggressive enforcement.

“[This] marks the official end of the losing narrative that crypto isn’t here to stay,” said Cody Carbone, policy director at Digital Chamber, a crypto lobby group.

The bill faces opposition from some Democrats. Even if it passes, it could still face an uphill climb in the Senate.

“What the Senate will see is a full vote,” said Republican Rep. Patrick McHenry, the lead sponsor of this legislation. “I think this should make the members of the Senate look at this in a new way.”

The price of a specific cryptocurrency – ether – is rising this week as investors become more confident that the SEC will give the green light to invest in ether ETFs.

The SEC in January approved ETFs that invest directly in bitcoin (BTC-USD), a development that has expanded the general acceptance of the world’s largest cryptocurrency. Now investors are hopeful that the same will happen with the second-largest cryptocurrency.

“Given the ‘behind the scenes’ political drama, the approval will be seen as significant regulatory relief for the sector,” Bernstein analysts said in a note.

The crypto world expects the same from the legislation expected to be presented to the House on Wednesday.

Approximately 60 crypto companies and industry organizations including Block, Coinbase (COIN), Circle, Kraken, and Paxos, sent a letter to House leadership last week in support of the project.

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“The bill is well written,” said Kara Calvert, head of US policy at Coinbase. “It is the first bill that explicitly contemplates how to think about decentralization, how to think about something that stops looking like a security and starts looking like a commodity.”

Calvert says the project allows regulators to focus on creating rules for centralized tokens, allowing for more focused resource management rather than scattered regulation through enforcement.

Republican lawmakers say this legislation will bring clarity to a fundamental question: whether a given digital asset is a security or not. The SEC argued that many cryptocurrencies are, in fact, securities — and therefore should be overseen by the agency.

But a majority of House Democrats — led by Maxine Waters, ranking member of the House Financial Services Committee — oppose the bill.

Waters held an informational meeting for Democrats on Monday, urging them to vote against the bill. She warned that changes made to the bill since last summer would now result in mass deregulation of both crypto and some traditional securities.

In a letter reviewed by Yahoo Finance that was sent to House Democratic members, House Agriculture and Waters Committee Ranking Member David Scott wrote that the revised bill would “move most crypto and some traditional securities into a void regulatory, no primary regulator and virtually no laws or regulations.”

Democratic Rep. Maxine Waters Opposes New Crypto Regulation Bill. REUTERS/Elizabeth Frantz/File photo (Reuters/Reuters)

The end result, the letter states, would be a “proliferation of fraud that will have devastating consequences for consumers and investors.”

Democratic lawmakers argued that the definition of “digital assets” and the revised bill’s addition regarding “investment contract assets” would effectively deregulate most cryptocurrencies, removing them from the purview of the SEC.

They also fear that by making the CFTC the primary regulator, consumers and investors will not have the same types of protections they enjoy at the SEC.

It is unknown how much opposition the bill would face in the Senate.

Senate Banking Committee Chairman Sherrod Brown (D-OH) – who has prioritized cracking down on cryptocurrencies used for money laundering – is remaining silent so far on the House’s crypto legislation.

“We must ensure that crypto platforms follow the same rules as other financial institutions,” Brown said in a statement last month. “And we need to make sure we have the tools to crack down on illicit finance with digital assets, just as we would with any other asset.”

McHenry said he is hopeful the outcome of Wednesday’s vote will get senators’ attention.

“We will strive to get everything we can out of this Congress,” McHenry said when it comes to passing encryption policy.

“There is bipartisan support for this push. But no matter what happens in this Congress, this set of policies is inevitable, it will happen, just as the role of cryptography is here to stay.”

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