Dear President Trump,
In your keynote speech at the Bitcoin conference in Nashville last year, you promised to make the US the crypto capital of the world if re-elected for a second term. When you return to the President’s Office this Monday, we are writing to you as practicing members of the cryptolaw bar to recommend regulatory policies that will help you achieve this goal.
The US, which rests on the same foundation of personal freedom as crypto, is naturally positioned to lead the world in its development. Unfortunately, US regulators have so far refused to adapt existing laws to digital assets and the blockchains that support them (or even to explain why not), creating 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 suggest you pursue the following forward-looking policies across three areas: supporting American businesses; promote crypto values such as privacy, disintermediation and decentralization; and to cultivate a favorable business environment in the domestic market.
Support for US-based companies
The crypto industry has produced a number 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 US by companies like Coinbase, Circle and Consensys, and by developers contributing to crypto’s open source, decentralized infrastructure. To continue to compete against their international rivals, these parties need clear rules of the road and proper regulatory guidance.
General traffic rules
Token issuance and secondary sales, which lie at the heart of the crypto-economy, are subject to confusing and overlapping regulatory authorities 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 determine when assets enter and exit that jurisdiction.
Here, Congress should resist giving the US securities laws blanket application, as the SEC has done. Tokens powered by open source software and consensus mechanisms that otherwise rely minimally 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 such as betting and lending bitcoin fall outside the scope of securities laws.
Congress should be brave. This means not feeling bound by past legislative efforts like FIT21 that were forged in a past policy environment that have unintended consequences. It also means leveraging the regulatory experiences of other nations, such as the EU with its MiCA framework, while avoiding their pitfalls and carving out a unique and fearless path forward for the United States.
Specific sectors
In addition to advocating for general regulations, your administration should encourage 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 of over $200 billion, are the lifeblood of the digital asset ecosystem. Increasingly recognized under frameworks such as the Stablecoin Standard and by government regulators, they guarantee comprehensive legislation for their issuance and management, ensuring that they are transparently supported and do not threaten financial stability. In addition to benefiting consumers, regulatory support for stablecoins promotes national interests. Like Eurodollars, stablecoins, which are usually denominated in US dollars, strengthen the dollar’s status as the global reserve currency and increase demand for US Treasuries that issuers hold in reserve.
Traffic Integration. The unprecedented success The unprecedented success of Bitcoin and Ethereum ETFs shows that crypto is beginning to integrate with traditional finance. The regulatory policy should ensure safe and orderly integration by giving consumers access to trusted custody services. This requires changing or repealing harmful SEC accounting guidelines (for example, SAB 121) and custodial rules. But it doesn’t have to stop there. Pro-innovation policy in this area should also promote the tokenization of securities representing traditional financial assets such as stocks, bonds or real estate as blockchain-based tokens. The resulting benefits, which include improved liquidity, shared ownership and faster settlement, will strengthen US capital markets and ensure they remain the most developed and innovative in the world.
DeFi. Decentralized finance has the potential to modernize the global financial system and return value to ordinary Americans by removing costly financial intermediaries. You shouldn’t allow vested interests and alarmism to stop the US from becoming the world leader in DeFi. In this regard, regulations targeting centralized actors, such as exchanges and issuers, must be designed in ways that avoid inadvertently trapping and crippling the still-burgeoning DeFi ecosystem.
Fostering innovation through a commitment to crypto-values
If it is to promote crypto-innovation, regulatory policy must respect crypto-values, including privacy, disintermediation and decentralization. Two central regulatory principles arise from this obligation. First, regulation should not place greater burdens on crypto where traditional analogues exist. Second, regulation should develop where traditional analogues are absent.
When should crypto be treated the same as traditional assets and tools
The first principle affects products such as self-decrypting wallets, which allow users to hold and manage their own private keys. Because these tools are analogous to physical wallets used for managing personal assets, they should not be treated differently—namely, as financial intermediaries for purposes of regulatory monitoring and surveillance. 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 who mine or validate blockchain transactions create new property, as do farmers who grow crops in their fields. And yet the IRS currently taxes them on that income. This discrimination should be abolished.
When should crypto be treated differently
The second principle requires regulators to resist placing crypto actors and activities in legacy frameworks incompatible with crypto. Doing so damages the crypto ecosystem, pushes the industry overseas, and erodes the rule of law.
Unfortunately, this is the path that many US regulators have taken. IRS
have begun treating crypto front-ends as “brokers” without statutory authority. The Justice Department has begun charging noncustodial wallet developers with unlicensed money transmission violations, despite its longstanding policy to the contrary. And the US Treasury has sanctioned the smart contract of privacy mixer Tornado Cash, even though it is neither a foreign person nor property, just code. (An appeals court overturned the penalty.)
Without diminishing the importance of the governmental interests at stake (tax evasion, money laundering, and national security), we argue that the government’s approaches are in each case wrong as a matter of innovation policy, and we urge your administration to to turn them.
Instead of regulating digital asset and blockchain companies like traditional businesses, we encourage regulators to partner with this new technological paradigm and with our industry. For example, if government surveillance (KYC) in a decentralized environment is indeed warranted in certain cases, regulators can leverage blockchain-based credentials that are portable across protocols, give users control over their data (an advantage of Web3 architecture) and is aligned with the frictionless blockchain ecosystem. Similarly, they can bring together the programmability of tokens and smart contracts to exclude sanctioned parties from parts of the crypto-economy.
Attract top talent with a welcoming business environment
To become the premier destination for top crypto talent, the US 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 in Operation Chokepoint 2.0 to immediately halt their irresponsible campaign aimed at de-banking the crypto industry.
Improve SEC rulemaking and enforcement. You should instruct your SEC chairman to review that agency’s approach to crypto. Over the past four years, the SEC has consistently exceeded its authority by pursuing bona fide industry leaders like Coinbase and Consensys, regulating individual developers and users (in its exchange redefinition of rulemaking), and launching enforcement actions against wallet providers. It is time for the SEC to correct this harmful approach and start 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 the punitive tax rules. Your administration should roll back punitive tax rules that push entrepreneurs and developers overseas while leaving well-intentioned taxpayers unsure how to calculate their tax bills. Low-hanging fruit improvements include adopting ongoing software development spending; tax deferral for validation rewards and airdrops; a safe haven for de minimis spending transactions (eg, less than $5,000); a mark-to-market choice 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 bureaucracy. Consistent with the mission of the Department of Government Efficiency (DOGE), we urge your office to work with Congress and government agencies to reduce the unnecessary bureaucracy that constrains crypto and fintech. This includes simplifying or eliminating registration and reporting requirements for digital assets that meet certain conditions, including the provision of material investor information. Congress should also consider enacting a unified federal money transmission licensing framework 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 see 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 contribute to the nation’s future economic prosperity and support a technology that rests on deep-seated American values and freedoms. You should seize the moment.
Kind regards
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 herein are those of the signatories and not necessarily those of their employers.
