How to make the US the crypto capital of the world

Dear President-elect Trump,

In your keynote address at the Bitcoin conference in Nashville last year, you promised to make the United States the crypto capital of the world if re-elected to a second term. As you return to the Oval Office this Monday, we write to you as practicing members of the Cryptocurrency Law Bar to recommend regulatory policies that will help achieve that goal.

The United States, built on the same foundation of individual freedom as cryptocurrencies, is naturally in a position to lead the world in the development of cryptocurrencies. Unfortunately, U.S. regulators have so far refused to adapt (or even explain why they do not) apply existing laws to digital assets and their underlying blockchains, leaving many entrepreneurs and developers This has created an unfavorable business environment that pushes many people overseas.

To unleash American ingenuity and correct this neglect of the blockchain industry, we propose pursuing forward-looking policies across three areas: Promote cryptographic values ​​such as privacy, disintermediation, and decentralization. Fostering a favorable business environment in Japan.

Supporting US-based businesses

The crypto industry has generated a wide range of established and emerging use cases, including digital gold, stablecoins, permissionless payments, decentralized finance, real-world assets, decentralized physical infrastructure (DePIN), and more. I did. Much of this is being driven responsibly in the United States by companies such as Coinbase, Circle, Consensys, and developers contributing to the open source decentralized infrastructure of cryptocurrencies. To continue to compete with international rivals, these parties need clear rules of the road and appropriate regulatory guidance.

General rules of the road

Token issuance and secondary sales, which lie at the heart of the crypto economy, are subject to complex and overlapping regulatory authorities from the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Market structure laws should clearly delineate the scope of jurisdiction between major regulators and define when assets enter and leave their jurisdictions.

Here, Congress should resist giving U.S. securities laws an overly broad application, as the SEC has done. Tokens, which utilize open source software and consensus mechanisms, are not securities because their dependence on an otherwise centralized entity is minimal. This is because there is no legal relationship between token holders and “issuers” as understood in securities law. Similarly, crypto assets such as art NFTs (mere digital works of art) and non-investment activities such as Bitcoin staking and lending are not subject to securities laws.

Congress should be bold. That means not being bound by previous legislative efforts, such as FIT21, that were created in a previous political environment and had unintended consequences. It also means leveraging the regulatory experience of other countries, such as the European Union with its MiCA framework, while avoiding its pitfalls and charting our own fearless course.

specific field

In addition to advocating for general rules, governments should encourage Congress and relevant agencies to address specific areas of strategic importance to the crypto industry and the nation.

stablecoin. With a current market capitalization of over $200 billion, stablecoins are the lifeblood of the digital asset ecosystem. Increasingly recognized by frameworks such as the Stablecoin Standard and by state regulators, coins ensure comprehensive legislation for issuance and governance, are backed by transparency, and do not threaten financial stability. I guarantee you that. Regulatory support for stablecoins not only benefits consumers but also advances national interests. Similar to Eurodollars, stablecoins, typically denominated in US dollars, strengthen the dollar’s status as the world’s reserve currency and increase demand for US government bonds held by their issuers as reserves.

TradFi integration. The unprecedented success of Bitcoin and Ethereum ETFs shows that cryptocurrencies are beginning to integrate with traditional finance. Regulatory policies should ensure safe and orderly consolidation by providing consumers with access to reliable storage services. This requires modification or revocation of unfavorable SEC accounting guidelines (such as SAB 121) and custody rules. But don’t stop there. Policies promoting innovation in this area should also encourage the tokenization of securities, representing traditional financial assets such as stocks, bonds, and real estate as blockchain-based tokens. As a result, benefits such as increased liquidity, fractional ownership, and faster settlement strengthen U.S. capital markets and ensure that they remain the most developed and innovative markets in the world.

DeFi. Decentralized finance has the potential to modernize the global financial system and return value to ordinary Americans by eliminating costly financial intermediaries. Entrenched interests and wariness should not prevent the United States from becoming a world leader in DeFi. In this regard, regulations targeting centralized entities such as exchanges and issuers must be crafted in a way that avoids inadvertently capturing and paralyzing the still-nascent DeFi ecosystem. yeah.

Fostering innovation through crypto value initiatives

When fostering cryptocurrency innovation, regulatory policies must respect crypto values, including privacy, disintermediation, and decentralization. Two important regulatory principles emerge from this effort. First, greater regulatory burdens should not be placed on cryptocurrencies that have traditional analogues. Second, regulations will need to evolve in areas where traditional analogs do not exist.

When to treat cryptocurrencies like traditional assets and tools

The first principle affects products such as self-custody wallets that allow users to hold and manage their own private keys. These tools are similar to physical wallets used for personal wealth management and should not be treated specially. This means that they should not be treated as financial intermediaries for purposes of regulatory oversight and oversight. There is no need to complete KYC before depositing cash into your physical wallet. The same applies when storing tokens in a digital wallet.

Similar logic applies to the taxation of block rewards. Americans who mine and verify blockchain transactions are creating new wealth in the same way that farmers grow crops in their fields. Nevertheless, the IRS is currently taxing that income. This discriminatory treatment should be abolished.

When to treat cryptocurrencies differently

The second principle requires regulators to resist embedding cryptocurrency actors and activities into legacy frameworks that are incompatible with cryptocurrencies. Doing so would damage the cryptocurrency ecosystem, push the industry overseas, and erode the rule of law.

Unfortunately, this is the path many US regulators have chosen. I.R.S.

It has begun to treat cryptocurrency front-ends as “brokers” without legal authority. The Department of Justice has begun prosecuting non-custodial wallet developers for unauthorized transfer violations, despite a longstanding policy to the contrary. And the US Treasury has sanctioned the privacy mixer Tornado Cash’s smart contract, even though it’s not a foreign person or property, it’s just code. (The Court of Appeals reversed the sanction.)

Without undermining the importance of government interests (tax evasion, money laundering, national security), we argue that in each case the government’s approach is wrong as a matter of innovation policy, and we urge your administration to I encourage you to withdraw.

Rather than regulating digital asset and blockchain businesses like traditional companies, we are asking regulators to work with this new technology paradigm and industry. For example, if government surveillance (KYC) in a decentralized environment is indeed warranted in certain cases, regulators could leverage blockchain-based credentials that are portable across protocols and provide users with control over their data. (an advantage of the Web3 architecture) and can collaborate. Leverage a frictionless blockchain ecosystem. Similarly, the programmability of tokens and smart contracts can also be organized to exclude sanctioned parties from being part of the crypto economy.

Attracting talented people with a comfortable business environment

For the United States to become a leading destination for top crypto talent, it needs to foster a favorable business environment. Administrators can start this process from day one.

Ending the demonetization of crypto companies. The government should direct the FDIC and all other agencies involved in Operation Chokepoint 2.0 to immediately cease their unaccountable campaign to debank the crypto industry.

Improve SEC rulemaking and enforcement. They should direct the SEC Chairman to overhaul the agency’s approach to cryptocurrencies. Over the past four years, the SEC has pursued bona fide industry leaders like Coinbase and Consensys, regulated individual developers and users (in creating rules redefining exchanges), and initiated enforcement actions against wallet providers. has consistently exceeded its authority by doing so. It is time for the SEC to correct this egregious approach and begin engaging constructively with the cryptocurrency industry, focusing on preventing fraud rather than curbing financial speculation, which benefits innovation.

Repeal punitive tax laws. Governments should end punitive tax systems that drive entrepreneurs and developers overseas while leaving well-meaning taxpayers uncertain about how their taxes are calculated. Low-hanging fruit improvements include introducing current overhead for software development. Tax deferral on verification rewards and airdrops. A safe place for minimal consumption transactions (e.g. less than $5,000). A mark-to-market election for crypto investors and an end to IRS reporting regulations that treat websites as brokers. Congress should also repeal the Section 6050I amendment, which imposes onerous (and likely unconstitutional) reporting requirements on virtual currency transactions over $10,000.

Eliminate unnecessary complications. In accordance with the mandate of the Department of Government Efficiency (DOGE), we urge your office to work with Congress and government agencies to reduce unnecessary red tape that restrains cryptocurrencies and fintech. This includes simplifying or eliminating registration and reporting requirements for digital asset offerings that meet certain conditions, such as providing material disclosures to investors. Congress should also consider enacting a uniform federal framework for money transfer licensing that would bring clarity and efficiency to the broader fintech ecosystem.

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In pursuing the forward-looking policies outlined above, we encourage governments to consult with industry leaders and remain sensitive to the cross-border scope of the digital asset ecosystem. (We believe your company’s creation of the Crypto Council is a positive step in this direction.) We also believe that leveraging devices such as regulatory sandboxes to limit the risk of unintended regulatory consequences We recommend that you do so.

The time is ripe for the United States to begin asserting global regulatory leadership. By ensuring that happens, your administration will contribute to the future economic prosperity of this country and uphold a technology grounded in America’s deep-rooted values ​​and freedoms. You should seize this moment.

Sincerely,

Ivo Enchev, Orta Andoni, Steven Rutenberg, Donna Radel

The following members of Cryptography Lawyers also signed this letter: Mike Basina, Joe Calasale, Eli Cohen, Mike Frisch, Jason Gottlieb, Eric Hess, Katherine Kirkpatrick, Dan McAvoy, John McCarthy, Margaret Rosenfeld, Gabriel Shapiro, Ben Snipes, Noah Spaulding, Andrea Tinianau, Jenny Vatrenko, Colin Woodward, and Rafael Jacobi.

The views expressed and reflected herein are those of the signatories and not necessarily those of the signatories’ employers.