Pricey President-Elect Trump,
In your keynote deal with on the Bitcoin convention in Nashville final yr, you pledged to make the USA the crypto capital of the world if re-elected for a second time period. As you come back to the presidential workplace this Monday, we write to you as training members of the crypto regulation bar to advocate regulatory insurance policies that may show you how to to realize that aim.
The USA, which rests on the identical basis of private liberty as crypto, is of course positioned to guide the world in its growth. Sadly, U.S. regulators have till now refused to adapt current legal guidelines to digital property and the blockchains that underpin them (and even to clarify why not), and created an unfavorable enterprise surroundings that has pushed many entrepreneurs and builders overseas.
To unleash American ingenuity and treatment this neglect of the blockchain business, we suggest that you just pursue the beneath forward-looking insurance policies throughout three areas: supporting U.S. firms; selling crypto values resembling privateness, disintermediation, and decentralization; and cultivating a positive enterprise surroundings domestically.
Supporting U.S.-Based mostly Companies
The crypto business has produced a variety of established and rising use-cases, together with digital gold, stablecoins, permissionless funds, decentralized finance, actual world property, decentralized bodily infrastructure (DePIN), and lots of extra. Lots of them are being responsibly superior in the USA by companies resembling Coinbase, Circle and Consensys, and by builders contributing to crypto’s open-source, decentralized infrastructure. To proceed competing in opposition to their worldwide rivals, these events want clear guidelines of the highway and correct regulatory steerage.
Normal Guidelines of the Street
Token issuance and secondary gross sales, which lie on the coronary heart of the crypto economic system, are topic to complicated and overlapping regulatory authority from the Securities and Trade Fee (SEC) and the Commodity Futures Buying and selling Fee (CFTC). Market construction laws ought to clearly delineate the scope of jurisdiction amongst main regulators and lay out when property enter and exit that jurisdiction.
Right here, Congress ought to resist giving the U.S. securities legal guidelines an overbroad utility, because the SEC has performed. Tokens powered by open-source software program and consensus mechanisms which can be in any other case minimally depending on centralized actors will not be securities as a result of there isn’t a authorized relationship between token house owners and an “issuer,” as understood by the securities legal guidelines. Equally, crypto property resembling artwork NFTs (that are merely digital paintings) and non-investment actions, like staking and lending bitcoin, fall outdoors the securities legal guidelines.
Congress needs to be daring. Which means not feeling sure by prior legislative efforts like FIT21 that had been cast in an earlier political surroundings which have unintended penalties. It additionally means leveraging the regulatory expertise of different nations, such because the European Union with its MiCA framework, whereas avoiding their pitfalls and charting a novel and dauntless path ahead for the USA.
Particular Sectors
Moreover advocating for basic guidelines, your administration ought to urge Congress and the related companies to handle particular sectors on account of their strategic significance to the crypto business and the nation.
Stablecoins. Stablecoins, with a present market cap in extra of $200 billion, are the lifeblood of the digital asset ecosystem. More and more acknowledged beneath frameworks just like the Stablecoin Normal and by state regulators, they warrant complete laws for his or her issuance and administration, guaranteeing that they’re transparently backed and don’t threaten monetary stability. Apart from benefitting customers, regulatory help of stablecoins furthers nationwide pursuits. Much like Eurodollars, stablecoins, that are often denominated in U.S. {dollars}, reinforce the greenback’s standing as the worldwide reserve forex and improve demand for U.S. treasuries, which issuers maintain in reserve.
TradFi Integration. The unprecedented success unprecedented success of Bitcoin and Ethereum ETFs demonstrates that crypto has begun integrating with conventional finance. Regulatory coverage ought to guarantee a secure and orderly integration by giving customers entry to trusted custody companies. This requires amending or rescinding prejudicial SEC accounting pointers (as an illustration, SAB 121) and custody guidelines. However it shouldn’t cease there. Professional-innovation coverage on this space also needs to promote the tokenization of securities representing conventional monetary property like shares, bonds, or actual property as blockchain-based tokens. The ensuing advantages, which embody improved liquidity, fractional possession, and sooner settlement, would strengthen U.S. capital markets, guaranteeing they continue to be essentially the most developed and progressive on this planet.
DeFi. Decentralized finance has the potential to modernize the worldwide monetary system and to return worth to strange Individuals by eradicating expensive monetary intermediaries. You shouldn’t permit entrenched pursuits and alarmism to cease the USA from turning into the world’s chief in DeFi. On this regard, laws aimed toward centralized actors, resembling exchanges and issuers, have to be crafted in ways in which keep away from inadvertently capturing and paralyzing the still-nascent DeFi ecosystem.
Fostering Innovation by way of a Dedication to Crypto Values
Whether it is to advertise crypto innovation, regulatory coverage should present respect for crypto values, together with privateness, disintermediation, and decentralization. Two key regulatory rules come up from this dedication. First, regulation shouldn’t impose larger burdens on crypto the place conventional analogs exist. Second, regulation ought to evolve the place conventional analogs are absent.
When To Deal with Crypto the Similar as Conventional Belongings and Instruments
The primary precept impacts merchandise like self-custody wallets, which allow customers to carry and handle their very own non-public keys. As a result of these instruments are analogous to bodily wallets used for private asset administration, they shouldn’t be handled any in a different way — specifically, as monetary intermediaries for functions of regulatory surveillance and monitoring. You aren’t required to finish KYC earlier than you may place money in a bodily pockets; the identical needs to be true for storing tokens in your digital pockets.
Comparable logic applies to the taxation of block rewards. Individuals mining or validating blockchain transactions are creating new property, identical to farmers rising crops of their fields. And but, the IRS at the moment taxes them on that earnings. This differential therapy needs to be abolished.
When To Deal with Crypto In another way
The second precept calls for regulators resist putting crypto actors and actions into legacy frameworks which can be incompatible with crypto. Doing so damages the crypto ecosystem, pushes the business overseas, and erodes the Rule of Regulation.
Regrettably, that is the trail that many U.S. regulators have chosen. The IRS
has begun treating crypto front-ends as “brokers” absent statutory authority. The Division of Justice has begun charging non-custodial pockets builders with unlicensed money-transmission violations regardless of its longstanding coverage on the contrary. And the U.S. Treasury has sanctioned the good contract of privateness mixer Twister Money although it’s neither a overseas particular person nor property, however merely code. (An appellate court docket overturned the sanction.)
With out diminishing the significance of the governmental pursuits at play (tax evasion, cash laundering, and nationwide safety), we submit that the federal government’s approaches in every case are fallacious as a matter of innovation coverage, and we encourage your administration to reverse them.
As a substitute of regulating digital asset and blockchain companies like conventional firms, we urge regulators to collaborate with this new technological paradigm and with our business. For instance, if authorities surveillance (KYC) in a decentralized surroundings is definitely justified in sure cases, regulators can leverage blockchain-based credentials which can be transportable throughout protocols, give customers management of their information (a good thing about Web3 structure), and are aligned with the frictionless blockchain ecosystem. Equally, they will marshal the programmability of tokens and good contracts to exclude sanctioned events from elements of the crypto economic system.
Attracting High Expertise With a Welcoming Enterprise Atmosphere
To change into the main vacation spot for high crypto expertise, the U.S. should domesticate a positive enterprise surroundings. Your administration can start this course of on Day One.
Finish de-banking of crypto firms. Your administration ought to direct the FDIC and all different companies concerned with Operation Chokepoint 2.0 to right away stop their unaccountable marketing campaign aimed toward de-banking the crypto business.
Enhance SEC rule-making and enforcement. It is best to instruct your SEC chair to overtake that company’s method to crypto. Over the previous 4 years, the SEC has persistently exceeded its authority by pursuing good religion business leaders resembling Coinbase and Consensys, regulating particular person builders and customers (in its alternate redefinition rulemaking), and launching enforcement actions in opposition to pockets suppliers. It’s time for the SEC to appropriate this pernicious method and start partaking constructively with the crypto business whereas focusing its efforts on stopping fraud moderately than curbing monetary hypothesis, which has advantages for innovation.
Roll again punitive tax guidelines. Your administration ought to roll again punitive tax guidelines that push entrepreneurs and builders overseas whereas leaving well-meaning taxpayers unsure about the way to calculate their tax payments. Low-hanging fruit enhancements embody the adoption of present expensing for software program growth; tax deferral for validation rewards and airdrops; a secure harbor for de minimis consumptive transactions (e.g. lower than $5,000); a mark-to-market election for crypto buyers and a repeal of IRS reporting laws that deal with web sites as brokers. Congress also needs to repeal amendments to Part 6050I, which impose burdensome (and certain unconstitutional) reporting necessities on crypto transactions over $10,000.
Scale back pointless purple tape. In line with the mission of the Division of Authorities Effectivity (D.O.G.E.), we urge your workplace to work with Congress and authorities companies to cut back the pointless purple tape restraining crypto and fintech. This consists of simplifying or eliminating registration and reporting necessities for digital asset choices that meet sure situations, together with offering important investor disclosures. Congress also needs to think about legislating a unified federal framework for cash transmission licensing that may carry readability and effectivity to the broader fintech ecosystem.
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In pursuing the above forward-looking insurance policies, we encourage your administration to seek the advice of with business leaders and stay delicate to the transnational scope of the digital asset ecosystem. (We view your formation of a Crypto Council as a optimistic step on this course.) We additionally advocate leveraging units, resembling regulatory sandboxes, that restrict the danger of unintended regulatory penalties.
The time is ripe for the USA to start asserting its international regulatory management. By guaranteeing that it does, your administration will likely be contributing to the nation’s future financial prosperity and endorsing a expertise that rests on deeply held American values and freedoms. It is best to seize the second.
Sincerely,
Ivo Entchev, Olta Andoni, Stephen Rutenberg, Donna Redel
The next members of the Crypto Regulation Bar additionally 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 mirrored upon herein are these of the signatories and never essentially of their employers.
