Compiled | Bai Shui
Foreword
More than 20 lawyers working in the cryptocurrency industry have written an open letter outlining how the Trump administration can create a legal environment that is favorable for the development of cryptocurrencies. This letter was exclusively published by CoinDesk and covers the regulation of the SEC and CFTC, potential legislation on managing stablecoins and DeFi, as well as tax cuts and simplified procedures.
The original text of the letter is as follows:
Dear President-elect Trump:
Last year, you gave a keynote address at the Bitcoin Conference in Nashville, promising to make America the world capital of cryptocurrencies if re-elected. As you return to the Oval Office this week, we write to you as members of the Crypto Bar Association to recommend regulatory policies that can help you achieve this goal.
America, like cryptocurrencies, is founded on individual liberty and is naturally positioned to lead the world. Unfortunately, U.S. regulators have so far refused to apply existing laws to digital assets and the blockchain technology behind them (even refusing to explain why), creating an unfavorable business environment that has forced many entrepreneurs and developers to go overseas.
To unleash American creativity, make up for the neglect of the blockchain industry, we recommend you pursue the following forward-looking policies in three areas: supporting U.S. companies; promoting crypto values like privacy, disintermediation, and decentralization; and creating a good domestic business environment.
Support U.S. Companies
The cryptocurrency industry has generated a range of mature and emerging use cases, including digital gold, stablecoins, permissionless payments, decentralized finance, real-world assets, and decentralized physical infrastructure (DePIN). Many of these use cases are being responsibly advanced in the U.S. by companies like Coinbase, Circle, and ConsenSys, as well as developers contributing to the open-source, decentralized infrastructure of cryptocurrencies. To continue competing with international rivals, these parties need clear rules and appropriate regulatory guidance.
General Rules
Token issuance and secondary market sales are at the core of the crypto economy, constrained by the overlapping jurisdictions of the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), whose regulatory authority is confusing. Market structure legislation should clearly delineate the jurisdiction of the primary regulators and specify when assets enter and exit that jurisdiction.
In this regard, Congress should avoid letting the U.S. securities laws apply as broadly as the SEC has. Tokens driven by open-source software and consensus mechanisms, with minimal reliance on centralized participants in other respects, are not securities because there is no legal relationship between token holders and "issuers" as defined by securities laws. Similarly, crypto assets like art NFTs (merely digital art) and non-investment activities (like staking and lending Bitcoin) are also outside the scope of securities laws.
Congress should be bolder. This means not being constrained by previous legislative efforts like FIT21, which were shaped by an earlier political environment and had unintended consequences. It also means leveraging 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 America.
Specific Industries
In addition to advocating for general rules, your administration should urge Congress and relevant agencies to address issues in specific areas that are strategically important to the crypto industry and the nation.
Stablecoins. Stablecoins, with a market cap exceeding $200 billion, are the lifeblood of the digital asset ecosystem. As they gain greater acceptance in frameworks like stablecoin standards and recognition by national regulators, comprehensive legislation is needed to ensure their issuance and management, providing transparent backing and not threatening financial stability. Beyond benefiting consumers, regulatory support for stablecoins also serves national interests. Like the euro, stablecoins typically denominated in U.S. dollars reinforce the dollar's status 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 integrate with traditional finance. Regulatory policy should ensure safe and orderly integration, allowing consumers access to trusted custodial services. This requires modifying or repealing biased SEC accounting standards (e.g., SAB 121) and custody rules. But it shouldn't stop there. Supportive innovation policies in this area should also drive the tokenization of traditional financial assets like 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 and ensure they remain the world's most developed and innovative.
DeFi. Decentralized finance has the potential to modernize the global financial system and bring value to ordinary Americans by eliminating expensive financial intermediaries. You should not let vested interests and scaremongering prevent America from becoming a world leader in DeFi. In this regard, regulation targeting centralized participants like exchanges and issuers must be crafted to avoid inadvertently capturing and crippling the still-nascent DeFi ecosystem.
Promote Innovation Through a Commitment to Crypto Values
To foster cryptocurrency innovation, regulatory policy must respect the values of cryptocurrencies, including privacy, disintermediation, and decentralization. This commitment yields two key regulatory principles. First, where traditional analogues exist, regulation should not impose greater burdens on cryptocurrencies. Second, regulation should evolve where traditional analogues are lacking.
When to Treat Cryptocurrencies Equally with Traditional Assets and Tools
The first principle impacts products like self-custodial wallets, which allow users to hold and manage their own private keys. Since these tools are analogous to physical wallets used for personal asset management, they should not be treated any differently - i.e., as financial intermediaries subject to regulatory oversight and monitoring. You don't need to complete KYC to deposit cash in a physical wallet; storing tokens in a digital wallet should be the same.
Similar logic applies to taxing blockchain rewards. Americans mining or validating 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 eliminated.
When to Differentiate Cryptocurrencies
The second principle requires regulators to resist placing crypto participants and activities into legacy frameworks incompatible with cryptocurrencies. Doing so would disrupt the crypto ecosystem, push the industry overseas, and erode the rule of law.
Regrettably, this is the path many U.S. regulators have chosen.
The IRS has begun treating crypto front-ends as "brokers" without statutory authority. The Department of Justice has started prosecuting non-custodial wallet developers for unlicensed money transmission, despite long-standing policies to the contrary. The Treasury Department has sanctioned the Tornado Cash smart contract, even though it is neither a foreign person nor property, but merely code. (An appeals court has since overturned this sanction.)
Without diminishing the importance of government interests (tax evasion, money laundering, and national security), we believe the government's approach in each case has been wrong from an innovation policy standpoint, and we encourage your administration to reverse these actions.
We urge regulators not to regulate digital assets and blockchain businesses like traditional companies, but to collaborate with this new technological paradigm and our industry. For example, where government monitoring (KYC) is actually reasonable in certain decentralized environments, regulators can leverage portable, blockchain-based credentials that let users control their own data (a Web3 architecture advantage) and remain consistent with the frictionless blockchain ecosystem. Similarly, they can integrate the programmability of tokens and smart contracts to exclude sanctioned parties from the crypto economy.
Attract Top Talent Through a Favorable Business Environment
To become the destination of choice for top crypto talent, the United States must foster a favorable business environment. Your government can start this process on day one.
End the de-banking of crypto companies. Your government should direct the Federal Deposit Insurance Corporation (FDIC) and all other agencies involved in Operation Chokepoint 2.0 to immediately cease their irresponsible activities aimed at de-banking the crypto industry.
Improve SEC rulemaking and enforcement. You should direct your SEC Chair to comprehensively reform the agency's approach to crypto. Over the past four years, the SEC has overstepped its authority, pursuing accountability from industry leaders like Coinbase and ConsenSys, regulating individual developers and users (redefining rules in their exchanges), and taking enforcement actions against wallet providers. Now is the time for the SEC to correct these harmful practices and begin constructive engagement with the crypto industry, focusing its efforts on preventing fraud rather than suppressing financial speculation, which is beneficial for innovation.
Eliminate punitive tax rules. Your government should eliminate the punitive tax rules that push entrepreneurs and developers overseas, while leaving well-intentioned taxpayers uncertain how to calculate their tax bills. Low-hanging fruit improvements include adopting current expense treatment for software development; deferring taxation on rewards and airdrops; a safe harbor for de minimis transactions (e.g., under $5,000); a mark-to-market election for crypto investors; and repealing the IRS reporting provision that treats websites as brokers. Congress should also repeal the amendment to Section 6050I, which imposes onerous (and potentially unconstitutional) reporting requirements on crypto currency transactions over $10,000.
Reduce unnecessary red tape. Consistent with the mission of the Department of Good Efficiency (D.O.G.E.), we urge your office to work with Congress and government agencies to reduce the unnecessary red tape that constrains cryptocurrencies and fintech. This includes simplifying or eliminating registration and reporting requirements for digital asset issuances that meet certain conditions, including providing necessary investor disclosures. Congress should also consider legislation to establish a unified federal money transmission licensing framework, bringing clarity and efficiency to the broader fintech ecosystem.
As you pursue these forward-looking policies, we encourage your government to consult with industry leaders and remain sensitive to the cross-border nature of the digital asset ecosystem. (We view your establishment of a Crypto Currency Council as a positive step in this direction.) We also recommend leveraging tools like regulatory sandboxes to limit the risk of unintended regulatory consequences.
Now is the opportune time for the United States to assert its global regulatory leadership. By ensuring this, your government will contribute to the country's future economic prosperity and support a technology rooted in America's deep-seated values and freedoms. You should seize the moment.
Sincerely,
Ivo Entchev, Olta Andoni, Stephen Rutenberg, Donna Redel
The following members of the Crypto Law Lawyers Association 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.
