Dear President-Elect Trump,
In your keynote address at the Bitcoin conference in Nashville last year, you pledged to make the United States the crypto capital of the world if re-elected for a second term. As you return to the presidential office this Monday, we write to you as practicing members of the crypto law bar to recommend regulatory policies that will help you to achieve that goal.
The United States, which rests on the same foundation of personal liberty as crypto, is naturally positioned to lead the world in its development. Unfortunately, U.S. regulators have until now refused to adapt existing laws to digital assets and the blockchains that underpin them (or even to explain why not), and created an unfavorable business environment that has driven many entrepreneurs and developers abroad.
To unleash American ingenuity and remedy this neglect of the blockchain industry, we propose that you pursue the below forward-looking policies across three areas: supporting U.S. companies; promoting crypto values such as privacy, disintermediation, and decentralization; and cultivating a favorable business environment domestically.
The crypto industry has produced a range of established and emerging use-cases, including digital gold, stablecoins, permissionless payments, decentralized finance, real world assets, decentralized physical infrastructure (DePIN), and many more. Many of them are being responsibly advanced in the United States by businesses such as Coinbase, Circle and Consensys, and by developers contributing to crypto’s open-source, decentralized infrastructure. To continue competing against their international rivals, these parties need clear rules of the road and proper regulatory guidance.
General Rules of the Road
Token issuance and secondary sales, which lie at the heart of the crypto economy, are subject to confusing and overlapping regulatory authority from the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Market structure legislation should clearly delineate the scope of jurisdiction among primary regulators and lay out when assets enter and exit that jurisdiction.
Here, Congress should resist giving the U.S. securities laws an overbroad application, as the SEC has done. Tokens powered by open-source software and consensus mechanisms that are otherwise minimally dependent on centralized actors are not securities because there is no legal relationship between token owners and an “issuer,” as understood by the securities laws. Similarly, crypto assets such as art NFTs (which are simply digital artwork) and non-investment activities, like staking and lending bitcoin, fall outside the securities laws.
Congress should be bold. That means not feeling bound by prior legislative efforts like FIT21 that were forged in an earlier political environment that have unintended consequences. It also means leveraging the regulatory experience of other nations, such as the European Union with its MiCA framework, while avoiding their pitfalls and charting a unique and dauntless path forward for the United States.
Specific Sectors
Besides advocating for general rules, your administration should urge Congress and the relevant agencies to address specific sectors due to their strategic importance to the crypto industry and the nation.
Stablecoins. Stablecoins, with a current market cap in excess of $200 billion, are the lifeblood of the digital asset ecosystem. Increasingly recognized under frameworks like the Stablecoin Standard and by state regulators, they warrant comprehensive legislation for their issuance and management, ensuring that they are transparently backed and do not threaten financial stability. Aside from benefitting consumers, regulatory support of stablecoins furthers national interests. Similar to Eurodollars, stablecoins, which are usually denominated in U.S. dollars, reinforce the dollar’s status as the global reserve currency and increase demand for U.S. treasuries, which issuers hold in reserve.
TradFi Integration. The unprecedented success unprecedented success of Bitcoin and Ethereum ETFs demonstrates that crypto has begun integrating with traditional finance. Regulatory policy should ensure a safe and orderly integration by giving consumers access to trusted custody services. This requires amending or rescinding prejudicial SEC accounting guidelines (for instance, SAB 121) and custody rules. But it should not stop there. Pro-innovation policy in this area should also promote the tokenization of securities representing traditional financial assets like stocks, bonds, or real estate as blockchain-based tokens. The resulting benefits, which include improved liquidity, fractional ownership, and faster settlement, would strengthen U.S. capital markets, ensuring they remain the most developed and innovative in the world.
DeFi. Decentralized finance has the potential to modernize the global financial system and to return value to ordinary Americans by removing costly financial intermediaries. You should not allow entrenched interests and alarmism to stop the United States from becoming the world’s leader in DeFi. In this regard, regulations aimed at centralized actors, such as exchanges and issuers, must be crafted in ways that avoid inadvertently capturing and paralyzing the still-nascent DeFi ecosystem.
If it is to promote crypto innovation, regulatory policy must show respect for crypto values, including privacy, disintermediation, and decentralization. Two key regulatory principles arise from this commitment. First, regulation should not impose greater burdens on crypto where traditional analogs exist. Second, regulation should evolve where traditional analogs are absent.
When To Treat Crypto the Same as Traditional Assets and Tools
The first principle impacts products like self-custody wallets, which enable users to hold and manage their own private keys. Because these tools are analogous to physical wallets used for personal asset management, they should not be treated any differently — namely, as financial intermediaries for purposes of regulatory surveillance and monitoring. You are not required to complete KYC before you can place cash in a physical wallet; the same should be true for storing tokens in your digital wallet.
Similar logic applies to the taxation of block rewards. Americans mining or validating blockchain transactions are creating new property, just like farmers growing crops in their fields. And yet, the IRS currently taxes them on that income. This differential treatment should be abolished.
When To Treat Crypto Differently
The second principle demands regulators resist placing crypto actors and activities into legacy frameworks that are incompatible with crypto. Doing so damages the crypto ecosystem, pushes the industry abroad, and erodes the Rule of Law.
Regrettably, this is the path that many U.S. regulators have chosen. The IRS
has begun treating crypto front-ends as “brokers” absent statutory authority. The Department of Justice has begun charging non-custodial wallet developers with unlicensed money-transmission violations despite its longstanding policy to the contrary. And the U.S. Treasury has sanctioned the smart contract of privacy mixer Tornado Cash even though it is neither a foreign person nor property, but merely code. (An appellate court overturned the sanction.)
Without diminishing the importance of the governmental interests at play (tax evasion, money laundering, and national security), we submit that the government’s approaches in each case are wrong as a matter of innovation policy, and we encourage your administration to reverse them.
Instead of regulating digital asset and blockchain businesses like traditional companies, we urge regulators to collaborate with this new technological paradigm and with our industry. For example, if government surveillance (KYC) in a decentralized environment is actually justified in certain instances, regulators can leverage blockchain-based credentials that are portable across protocols, give users control of their data (a benefit of Web3 architecture), and are aligned with the frictionless blockchain ecosystem. Similarly, they can marshal the programmability of tokens and smart contracts to exclude sanctioned parties from parts of the crypto economy.
To become the leading destination for top crypto talent, the U.S. must cultivate a favorable business environment. Your administration can begin this process on Day One.
End de-banking of crypto companies. Your administration should direct the FDIC and all other agencies involved with Operation Chokepoint 2.0 to immediately cease their unaccountable campaign aimed at de-banking the crypto industry.
Improve SEC rule-making and enforcement. You should instruct your SEC chair to overhaul that agency’s approach to crypto. Over the past four years, the SEC has consistently exceeded its authority by pursuing good faith industry leaders such as Coinbase and Consensys, regulating individual developers and users (in its exchange redefinition rulemaking), and launching enforcement actions against wallet providers. It is time for the SEC to correct this pernicious approach and begin engaging constructively with the crypto industry while focusing its efforts on preventing fraud rather than curbing financial speculation, which has benefits for innovation.
Roll back punitive tax rules. Your administration should roll back punitive tax rules that push entrepreneurs and developers abroad while leaving well-meaning taxpayers uncertain about how to calculate their tax bills. Low-hanging fruit improvements include the adoption of current expensing for software development; tax deferral for validation rewards and airdrops; a safe harbor for de minimis consumptive transactions (e.g. less than $5,000); a mark-to-market election for crypto investors and a repeal of IRS reporting regulations that treat websites as brokers. Congress should also repeal amendments to Section 6050I, which impose burdensome (and likely unconstitutional) reporting requirements on crypto transactions over $10,000.
Reduce unnecessary red tape. Consistent with the mission of the Department of Government Efficiency (D.O.G.E.), we urge your office to work with Congress and government agencies to reduce the unnecessary red tape restraining crypto and fintech. This includes simplifying or eliminating registration and reporting requirements for digital asset offerings that meet certain conditions, including providing essential investor disclosures. Congress should also consider legislating a unified federal framework for money transmission licensing that would bring clarity and efficiency to the broader fintech ecosystem.
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In pursuing the above forward-looking policies, we encourage your administration to consult with industry leaders and remain sensitive to the transnational scope of the digital asset ecosystem. (We view your formation of a Crypto Council as a positive step in this direction.) We also recommend leveraging devices, such as regulatory sandboxes, that limit the risk of unintended regulatory consequences.
The time is ripe for the United States to begin asserting its global regulatory leadership. By ensuring that it does, your administration will be contributing to the country’s future economic prosperity and endorsing a technology that rests on deeply held American values and freedoms. You should seize the moment.
Sincerely,
Ivo Entchev, Olta Andoni, Stephen Rutenberg, Donna Redel
The following members of the Crypto Law Bar also signed this letter: Mike Bacina, Joe Carlasare, Eli Cohen, Mike Frisch, Jason Gottlieb, Eric Hess, Katherine Kirkpatrick, Dan McAvoy, John McCarthy, Margaret Rosenfeld, Gabriel Shapiro, Ben Snipes, Noah Spaulding, Andrea Tinianow, Jenny Vatrenko, Collin Woodward, and Rafael Yakobi.
The views represented and reflected upon herein are those of the signatories and not necessarily of their employers.
