Source: CoinDesk; Compiled by: Baishui, Golden Finance
Foreword
More than 20 lawyers working in the cryptocurrency industry have written an open letter outlining how the incoming Trump administration can create a legal environment conducive to the development of cryptocurrency. The letter, exclusively published by CoinDesk, covers regulation of the SEC and CFTC, potential legislation governing stablecoins and DeFi, as well as tax cuts and simplifications.
Here is the original text of the letter:
Dear President-elect Trump:
Last year, you delivered a keynote speech at the Bitcoin Conference in Nashville, promising to make the United States the world's cryptocurrency capital if re-elected. As you return to the Oval Office this Monday, we write to you as practicing members of the Cryptocurrency Lawyers Association to recommend regulatory policies that will help you achieve this goal.
The United States, like cryptocurrencies, is founded on individual freedom and is naturally positioned to lead the world in development. Unfortunately, U.S. regulators have so far refused to apply existing laws to digital assets and the blockchain behind them (or even to explain why), creating an unfavorable business environment that has forced many entrepreneurs and developers to move overseas.
To unleash American creativity and make up for the neglect of the blockchain industry, we recommend the following forward-looking policies in three areas: supporting U.S. companies; promoting crypto values such as privacy, disintermediation, and decentralization; and creating a favorable business environment at home.
Supporting American Businesses
The cryptocurrency industry has generated a range of established and emerging use cases, including digital gold, stablecoins, permissionless payments, decentralized finance, real-world assets, decentralized physical infrastructure (DePIN), and more. Many of these use cases are being responsibly advanced in the United States by businesses such as Coinbase, Circle, and Consensys, as well as developers contributing to the open-source decentralized infrastructure for cryptocurrency. To continue to compete with international competitors, these parties need clear rules and appropriate regulatory guidance.
General Rules
Token issuance and secondary market sales are at the heart of the cryptoeconomy and are subject to confusing and overlapping regulatory authorities of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Market structure legislation should clearly delineate the jurisdiction of the primary regulator and regulate when assets enter and exit that jurisdiction.
In this regard, Congress should avoid making U.S. securities laws overly broad, 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 “issuers” as defined by securities laws. Similarly, crypto assets such as art NFTs (simply digital artworks) and non-investment activities such as staking and lending Bitcoin are also outside the scope of securities laws.
Congress should be bold. This means not being stymied by prior legislative efforts such as FIT21, which were shaped in an early political environment and had unintended consequences. It also means drawing on the regulatory experience of other countries, such as the EU’s MiCA framework, while avoiding their pitfalls to chart a unique and fearless path forward for the United States.
Specific Sectors
In addition to advocating for general rules, your administration should urge Congress and relevant agencies to address specific sectors because of their strategic importance to the crypto industry and the country.
Stablecoins. With a current market capitalization of over $200 billion, stablecoins are the lifeblood of the digital asset ecosystem. Their growing acceptance in frameworks such as the Stablecoin Standard and by national regulators requires comprehensive legislation for their issuance and management, ensuring that they are transparently backed and do not threaten financial stability. In addition to benefiting consumers, regulatory support for stablecoins also advances the national interest. Similar to Eurodollars, stablecoins, which are often denominated in U.S. dollars, reinforce the dollar’s position as a global reserve currency and increase demand for U.S. Treasuries held by issuers.
TradFi Integration. The unprecedented success of Bitcoin and Ethereum ETFs shows that cryptocurrencies are beginning to merge with traditional finance. Regulatory policy should ensure safe and orderly integration, giving consumers access to trusted custodial services. This requires amending or repealing biased SEC accounting standards (such as SAB 121) and custody rules. But it should not stop there. Pro-innovation policies in this area should also promote the tokenization of securities representing traditional financial assets such as stocks, bonds or real estate into blockchain-based tokens. The resulting benefits, including increased liquidity, fractional ownership and faster settlement, will 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 bring value to ordinary Americans by eliminating costly financial intermediaries. You should not let vested interests and alarmism prevent the United States from becoming a world leader in the DeFi space. In this regard, regulation of centralized players such as exchanges and issuers must be crafted in a way that avoids inadvertently capturing and paralyzing the still-nascent DeFi ecosystem.
Promoting Innovation Through a Commitment to Crypto Values
If cryptocurrency innovation is to be fostered, regulatory policies must respect the values of cryptocurrencies, including privacy, disintermediation, and decentralization. This commitment generates two key regulatory principles. First, regulation should not impose a greater burden on cryptocurrencies where traditional analogs exist. Second, regulation should evolve in the absence of traditional analogs.
When to Treat Cryptocurrencies the Same as Traditional Assets and Instruments
The first principle affects products such as self-custody wallets, which enable users to hold and manage their own private keys. Because these instruments are similar to physical wallets used for personal asset management, they should not be treated as anything different—namely, as financial intermediaries for regulatory oversight and monitoring purposes. You do not need to complete KYC to deposit cash into a physical wallet; the same should be true for storing tokens in a digital wallet.
Similar logic applies to taxing block rewards. Americans who mine or validate blockchain transactions are creating new property, just as farmers grow crops in their fields. Yet the IRS currently taxes their income. This differential treatment should be abolished.
When Cryptocurrencies Should Be Treated Differently
The second principle requires regulators to resist placing cryptocurrency actors and activities in legacy frameworks that are incompatible with cryptocurrency. Doing so would undermine the cryptocurrency ecosystem, push the industry offshore, and erode the rule of law.
Regrettably, this is the path many U.S. regulators have chosen.
The IRS has begun treating cryptocurrency frontends as “brokers” without legal authority. The Department of Justice has begun charging noncustodial wallet developers with violations of unlicensed money transmission regulations, despite its long-standing policy to the contrary. The U.S. Treasury Department has approved the smart contract of privacy mixer Tornado Cash, even though it is neither foreign nor property, but only code. (The Court of Appeal overturned that sanction.)
Without diminishing the importance of government interests (tax evasion, money laundering, and national security), we believe that the government’s approach in each case was a mistake in innovation policy, and we encourage your government to reverse these approaches.
We urge regulators not to regulate digital assets and blockchain businesses as they would traditional companies, but to work with this new technological paradigm and our industry. For example, if government surveillance (KYC) in a decentralized environment is actually justified in certain circumstances, regulators could leverage blockchain-based credentials that are portable across protocols, giving users control over their own data (a benefit of Web3 architecture) and aligning with a frictionless blockchain ecosystem. Similarly, they could integrate the programmability of tokens and smart contracts to exclude sanctioned parties from the cryptoeconomy.
Attract Top Talent Through a Pro-Business Climate
To become a top destination for top crypto talent, the United States must foster a pro-business climate. Your administration can begin this process on day one.
End the Debanking of Crypto Companies. Your administration should direct the Federal Deposit Insurance Corporation (FDIC) and all other agencies involved in Operation Chokepoint 2.0 to immediately cease irresponsible activities designed to debank the crypto industry.
Improve SEC rulemaking and enforcement. You should direct your SEC Chairman to overhaul the agency’s approach to crypto. Over the past four years, the SEC has consistently overstepped its authority, holding honest industry leaders like Coinbase and Consensys accountable, policing individual developers and users (in the midst of redefining rulemaking on its exchanges), and taking enforcement actions against wallet providers. It’s time for the SEC to correct this harmful practice and begin constructively engaging with the crypto industry while focusing its efforts on preventing fraud rather than disincentivizing financial speculation, which is good for innovation.
Remove Punitive Tax Rules. Your government should eliminate punitive tax rules that drive entrepreneurs and developers offshore while leaving well-intentioned taxpayers unsure about how to calculate their tax bills. Low-hanging fruit include adopting current fees for software development; tax deferrals for validation rewards and airdrops; safe harbors for minimum spend transactions (e.g., less than $5,000); mark-to-market options for cryptocurrency investors and repealing IRS reporting rules that treat websites as brokers. Congress should also repeal the amendment to Section 6050I, which imposes burdensome (and potentially unconstitutional) reporting requirements on cryptocurrency transactions over $10,000.
Reduce Unnecessary Red Tape. Consistent with the Department of Government Efficiency’s (D.O.G.E.) mission, we urge your office to work with Congress and government agencies to reduce unnecessary red tape that restricts cryptocurrency and fintech. This includes streamlining or eliminating registration and reporting requirements for digital asset offerings that meet certain conditions, including providing required investor disclosures. Congress should also consider legislation to create a unified federal money transmission licensing framework to bring clarity and efficiency to the broader fintech ecosystem.
In pursuing the forward-looking policies outlined above, we encourage your administration to consult with industry leaders and be sensitive to the multinational scope of the digital asset ecosystem. (We view your creation of a cryptocurrency council as a positive step in this direction.) We also recommend utilizing devices such as regulatory sandboxes to limit the risk of unintended regulatory consequences.
Now is a good time for the United States to begin asserting its global regulatory leadership. By ensuring that it does so, your administration will contribute to the country's future economic prosperity and support a technology that is grounded in America's deeply held 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 Association also signed the 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.
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