How to Make the United States the Crypto Capital of the World: A Letter to President-Elect Trump from the Crypto Law Bar

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What to know:

  • More 20 attorneys working in the crypto industry have written an open letter outlining ways the incoming Trump administration can create a legal environment favorable to crypto development
  • The letter, published exclusively with CoinDesk, covers regulation by the SEC and CFTC, potential legislation governing stablecoins and DeFi, and cutting taxes and red tape.

Dear President-Elect Trump,

In your speech at the Bitcoin conference in Nashville last year, you expressed your intention to turn the United States into the world’s leading cryptocurrency hub if given a second term. As you resume your presidential duties on Monday, we, as active members of the legal community specializing in crypto law, write to propose regulatory guidelines that will assist you in fulfilling this ambition.

In essence, a country like the United States, built on the same principles of individual freedom as cryptocurrencies, is inherently poised to spearhead global advancements in this field. Regrettably, U.S. regulatory bodies have yet to modify existing laws to accommodate digital assets and the blockchain technology behind them (and often fail to clarify why not), thereby fostering an unappealing business climate that has prompted numerous innovators and developers to seek opportunities elsewhere.

To stimulate American innovation in the field of blockchain technology, which has been overlooked, we recommend you consider implementing these future-oriented policies in three key areas:

1. Encouraging and supporting American businesses involved in this industry.
2. Advocating for principles inherent to cryptocurrencies, such as privacy, eliminating intermediaries, and decentralization.
3. Creating a conducive business climate domestically that fosters growth in the blockchain sector.

Supporting U.S.-Based Businesses

The world of cryptocurrency has given birth to various applications that are already popular or still in development, such as digital versions of gold, coins that maintain stability, peer-to-peer transactions without intermediaries, financial systems not controlled by a central authority, investments in real-world assets, and infrastructure for physical decentralized systems (DePIN), among others. Companies like Coinbase, Circle, Consensys, and developers working on the open-source infrastructure of cryptocurrency are leading these advancements in the U.S. To stay competitive with international counterparts, it’s crucial that they have clear guidelines and appropriate regulatory oversight.

General Rules of the Road

In simpler terms, the issuance and resale of digital tokens, a crucial aspect of the cryptocurrency market, are currently under the purview of both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). This overlapping jurisdiction leads to confusion. To clarify matters, it’s important for legislators to define clearly where each regulator’s authority begins and ends, as well as when assets move in and out of their regulatory scope.

In this scenario, it’s important to prevent U.S. securities regulations from being overly expansive in their interpretation, as the SEC has tended to do so far. This is because digital assets like tokens that are primarily driven by open-source software and consensus mechanisms, and have minimal reliance on centralized actors, should not be considered securities. The reason behind this is that there’s no established legal relationship between token holders and the supposed “issuer,” as defined by securities laws.

Additionally, cryptographic assets such as art Non-Fungible Tokens (NFTs), which are essentially digital artwork, and non-investment activities like staking or lending Bitcoin, do not fall under the purview of securities regulations.

In simpler terms, Congress should show courage by not letting past legislative attempts like FIT21 limit them, especially since those were made in a different political climate that may have led to unforeseen consequences. Instead, they should learn from the regulatory experiences of other countries, such as the European Union and its MiCA framework, but avoid their potential mistakes and forge a distinct and fearless path tailored specifically for the United States.

Specific Sectors

In addition to promoting broad guidelines, it would be beneficial for your administration to encourage both Congress and pertinent departments to focus on particular sectors within the cryptocurrency industry, as these areas hold significant strategic value not only to the industry but also to our country.

Stablecoins, valued at over $200 billion, play a crucial role within the digital assets sector, often referred to as their life source. More and more, they are being acknowledged under guidelines like the Stablecoin Standard and by regulatory bodies. To maintain trust and stability, it’s essential that laws governing their creation and management be clearly defined. These regulations would ensure transparency in backing and prevent potential risks to financial security. Besides protecting consumers, supportive regulation of stablecoins also serves national interests. Much like Eurodollars, stablecoins – typically denominated in U.S. dollars – help maintain the dollar’s position as the leading global reserve currency and increase demand for U.S. government bonds, which are held in reserve by issuers.

Incorporating Traditional Finance with Cryptocurrencies. The remarkable achievement of Bitcoin and Ethereum Exchange-Traded Funds (ETFs) signifies that cryptocurrencies are gradually merging with conventional finance. To ensure a secure and well-managed fusion, regulatory policies should prioritize consumer safety by providing access to dependable custody services. This may involve revising or overturning restrictive Securities and Exchange Commission (SEC) accounting guidelines such as SAB 121 and custody rules. However, this is just the beginning. Forward-thinking regulations in this sector should also foster the creation of blockchain-based tokens for securitization of traditional financial assets like stocks, bonds, or real estate. The ensuing advantages, including enhanced liquidity, fractional ownership, and quicker settlements, would fortify U.S. capital markets, maintaining their status as the most advanced and innovative globally.

Decentralized Finance (DeFi) represents a promising evolution for the worldwide financial sector, providing an opportunity to redistribute wealth by eliminating expensive intermediaries typically found in traditional finance. It is crucial not to let established interests and fearmongering hinder the U.S.’s position as a pioneer in DeFi. To achieve this goal, regulations targeting centralized entities like exchanges and issuers should be designed carefully to ensure they don’t unintentionally stifle or hamper the rapidly growing DeFi environment.

Fostering Innovation through a Commitment to Crypto Values

To foster advancements in the field of cryptocurrency, regulations need to honor and respect the core values of cryptocurrencies such as privacy, eliminating intermediaries, and decentralization. This leads to two fundamental principles for regulation. First, regulations should not place heavier requirements on cryptocurrencies where traditional counterparts already exist. Second, regulations must adapt and evolve when traditional comparisons are lacking.

When To Treat Crypto the Same as Traditional Assets and Tools

The initial rule applies to items such as personal key-holding digital wallets, where users maintain control over their private keys. Since these devices work similarly to real-world wallets used for personal finance management, they should not face special treatment – specifically, being viewed as financial intermediaries for regulatory supervision and monitoring. Just like you don’t need to provide KYC information to fill cash into a traditional wallet, the same concept applies when depositing tokens in your digital wallet.

In simpler terms, it’s only fair to apply the same taxation principles to the earnings from mining or validating blockchain transactions as we do for traditional farming activities. After all, both involve creating something new (miners create cryptocurrency and farmers grow crops). However, currently, the IRS taxes miners on their income while leaving farmers exempt in many cases. This discrepancy in treatment should be eliminated.

When To Treat Crypto Differently

The second guideline insists that regulators refrain from categorizing crypto entities and operations within outdated systems that don’t align with cryptocurrency’s nature. Failing to do so can negatively impact the crypto environment, drive the sector overseas, and undermine the Rule of Law.

Regrettably, this is the path that many U.S. regulators have chosen. The IRS

As a crypto investor, I’ve noticed that regulatory bodies like the Department of Justice have been treating non-custodial wallet developers as if they were brokers, without the necessary statutory authority. This has led to charges of unlicensed money transmission violations, which seems to contradict their longstanding policy.

Additionally, I’ve seen instances where the U.S. Treasury has sanctioned the smart contract code of privacy mixers, such as Tornado Cash. However, it’s important to note that these are just lines of code and not foreign persons or property. This move has been controversial, with an appellate court later overturning the sanction.

We acknowledge the significance of the issues concerning tax evasion, money laundering, and national security that the government is addressing. However, we contend that the methods they’re using in these instances are misguided from an innovation perspective. We kindly suggest that your administration reconsiders these approaches.

Instead of treating digital asset and blockchain businesses like traditional companies, it’s more beneficial for regulators to work together with this innovative technological landscape and our industry. For instance, if there’s a valid reason for government oversight (KYC) in a decentralized setting, regulators could utilize blockchain-verified credentials that are transferable across different platforms, empower users to manage their own data (a key feature of Web3), and adapt to the seamless nature of the blockchain ecosystem. Furthermore, they could employ the functionalities of tokens and smart contracts to isolate parties under sanctions from specific sectors within the cryptocurrency market.

Attracting Top Talent With a Welcoming Business Environment

To establish the U.S. as the prime hub for elite cryptocurrency professionals, it’s crucial to foster an attractive and welcoming business climate. Your administration could start setting the stage for this transformation from its very first day in office.

As a researcher in this field, I would advocate for a shift in policy within my administration. Specifically, I propose that we instruct the Federal Deposit Insurance Corporation (FDIC) and all other relevant agencies participating in Operation Chokepoint 2.0 to halt their ongoing efforts that aim to discontinue banking services for cryptocurrency companies. This action is necessary to ensure accountability and promote a fair and inclusive financial ecosystem.

Advise your Securities and Exchange Commission (SEC) chairman to revamp the agency’s strategy towards cryptocurrencies. Over the last four years, the SEC has been overstepping its boundaries by targeting reputable industry players like Coinbase and Consensys with regulatory actions. This aggressive approach includes regulating individual developers, classifying digital wallets as exchanges, and pursuing enforcement against wallet providers. It’s high time for the SEC to rectify this problematic strategy and start collaborating positively with the crypto sector, focusing primarily on combatting fraud instead of restricting financial speculation. Such a shift would foster innovation in the long run.

Reconsider harsh tax regulations. Your administration needs to reconsider the harsh tax regulations that drive entrepreneurs and developers away, while leaving honest taxpayers in a state of confusion about their tax liabilities. Simple changes could include implementing immediate expensing for software development; deferring taxes on validation rewards and airdrops; setting a safe harbor for transactions below $5,000; giving crypto investors the option to use mark-to-market accounting; and repealing IRS reporting regulations that classify websites as brokers. Congress should also consider repealing amendments to Section 6050I, which introduce burdensome (and possibly unconstitutional) reporting requirements for crypto transactions exceeding $10,000.

In line with the Department of Government Efficiency’s (D.O.G.E.) objectives, we recommend collaborating with Congress and government bodies to cut back on excessive bureaucratic procedures that hinder crypto and financial technology (fintech). This involves streamlining or removing unnecessary registration and reporting requirements for digital asset offerings that fulfill specific conditions, such as ensuring necessary investor disclosures. Additionally, it would be beneficial for Congress to contemplate drafting a unified federal law for money transmission licensing. Such legislation would bring clarity and efficiency to the wider fintech sector.

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As we move ahead with future-oriented policies regarding digital assets, it would be beneficial for your administration to collaborate with key industry players and keep in mind the global nature of the digital asset market. We appreciate the initiative of creating a Crypto Council as it seems to be a step towards achieving this goal. Additionally, we suggest utilizing tools like regulatory sandboxes, which can help minimize unexpected regulatory impacts.

Now is the perfect time for the United States to step up as a worldwide leader in regulatory matters. By taking this initiative, your administration can help secure the nation’s future economic growth while championing a technology that aligns with cherished American principles of liberty and self-expression. Don’t let this opportunity pass by.

Sincerely,

Ivo Entchev, Olta Andoni, Stephen Rutenberg, Donna Redel

The individuals listed below are among those who have added their signatures to 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 opinions expressed and considered within this document belong solely to the signatories, and may not align with those of their respective employers.

This article represents the opinions of the writer; they don’t necessarily mirror the views of CoinDesk, Inc., its proprietors, or associated partners.

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2025-01-16 23:33