Expensive President-Elect Trump,
In your keynote deal with on the Bitcoin convention in Nashville final 12 months, 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 practising members of the crypto legislation bar to suggest regulatory insurance policies that can show you how to to attain that aim.
The US, which rests on the identical basis of non-public liberty as crypto, is of course positioned to steer the world in its growth. Sadly, U.S. regulators have till now refused to adapt present legal guidelines to digital property and the blockchains that underpin them (and even to clarify why not), and created an unfavorable enterprise atmosphere that has pushed many entrepreneurs and builders overseas.
To unleash American ingenuity and treatment this neglect of the blockchain trade, we suggest that you just pursue the beneath forward-looking insurance policies throughout three areas: supporting U.S. firms; selling crypto values akin to privateness, disintermediation, and decentralization; and cultivating a good enterprise atmosphere domestically.
Supporting U.S.-Based mostly Companies
The crypto trade has produced a spread of established and rising use-cases, together with digital gold, stablecoins, permissionless funds, decentralized finance, actual world property, decentralized bodily infrastructure (DePIN), and many extra. Lots of them are being responsibly superior in the USA by companies akin to Coinbase, Circle and Consensys, and by builders contributing to crypto’s open-source, decentralized infrastructure. To proceed competing towards their worldwide rivals, these events want clear guidelines of the highway and correct regulatory steerage.
Basic Guidelines of the Highway
Token issuance and secondary gross sales, which lie on the coronary heart of the crypto financial system, are topic to complicated and overlapping regulatory authority from the Securities and Alternate Fee (SEC) and the Commodity Futures Buying and selling Fee (CFTC). Market construction laws ought to clearly delineate the scope of jurisdiction amongst major 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 software, because the SEC has performed. Tokens powered by open-source software program and consensus mechanisms which are in any other case minimally depending on centralized actors will not be securities as a result of there isn’t any authorized relationship between token house owners and an “issuer,” as understood by the securities legal guidelines. Equally, crypto property akin to artwork NFTs (that are merely digital paintings) and non-investment actions, like staking and lending bitcoin, fall outdoors the securities legal guidelines.
Congress ought to be daring. Meaning not feeling certain by prior legislative efforts like FIT21 that have been solid in an earlier political atmosphere 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 singular and dauntless path ahead for the USA.
Particular Sectors
Apart from advocating for basic guidelines, your administration ought to urge Congress and the related businesses to deal with particular sectors as a result of their strategic significance to the crypto trade 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 underneath frameworks 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. Except for benefitting shoppers, 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 protected and orderly integration by giving shoppers entry to trusted custody providers. This requires amending or rescinding prejudicial SEC accounting tips (as an illustration, SAB 121) and custody guidelines. But it surely 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 embrace improved liquidity, fractional possession, and quicker settlement, would strengthen U.S. capital markets, guaranteeing they continue to be essentially the most developed and revolutionary on the earth.
DeFi. Decentralized finance has the potential to modernize the worldwide monetary system and to return worth to odd People by eradicating pricey monetary intermediaries. You shouldn’t permit entrenched pursuits and alarmism to cease the USA from changing into the world’s chief in DeFi. On this regard, laws geared toward centralized actors, akin to 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 means 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 ideas 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 Identical as Conventional Property 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 otherwise — particularly, 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 ought to be true for storing tokens in your digital pockets.
Comparable logic applies to the taxation of block rewards. People 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 ought to be abolished.
When To Deal with Crypto Otherwise
The second precept calls for regulators resist putting crypto actors and actions into legacy frameworks which are incompatible with crypto. Doing so damages the crypto ecosystem, pushes the trade 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 sensible contract of privateness mixer Twister Money despite the fact that it’s neither a overseas particular person nor property, however merely code. (An appellate courtroom 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 incorrect 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 trade. For instance, if authorities surveillance (KYC) in a decentralized atmosphere is definitely justified in sure situations, regulators can leverage blockchain-based credentials which are transportable throughout protocols, give customers management of their knowledge (a advantage of Web3 structure), and are aligned with the frictionless blockchain ecosystem. Equally, they will marshal the programmability of tokens and sensible contracts to exclude sanctioned events from elements of the crypto financial system.
Attracting Prime Expertise With a Welcoming Enterprise Atmosphere
To grow to be the main vacation spot for prime crypto expertise, the U.S. should domesticate a good enterprise atmosphere. 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 businesses concerned with Operation Chokepoint 2.0 to right away stop their unaccountable marketing campaign geared toward de-banking the crypto trade.
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 constantly exceeded its authority by pursuing good religion trade leaders akin to Coinbase and Consensys, regulating particular person builders and customers (in its change redefinition rulemaking), and launching enforcement actions towards pockets suppliers. It’s time for the SEC to right this pernicious method and start participating constructively with the crypto trade whereas focusing its efforts on stopping fraud relatively 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 best way to calculate their tax payments. Low-hanging fruit enhancements embrace the adoption of present expensing for software program growth; tax deferral for validation rewards and airdrops; a protected harbor for de minimis consumptive transactions (e.g. lower than $5,000); a mark-to-market election for crypto traders 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 sure unconstitutional) reporting necessities on crypto transactions over $10,000.
Cut 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 businesses 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 circumstances, together with offering important investor disclosures. Congress also needs to contemplate legislating a unified federal framework for cash transmission licensing that may convey 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 trade leaders and stay delicate to the transnational scope of the digital asset ecosystem. (We view your formation of a Crypto Council as a constructive step on this path.) We additionally suggest leveraging gadgets, akin to regulatory sandboxes, that restrict the chance of unintended regulatory penalties.
The time is ripe for the USA to start asserting its world regulatory management. By guaranteeing that it does, your administration might 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.