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 working towards members of the crypto legislation bar to advocate regulatory insurance policies that may assist you to realize that purpose.
The USA, which rests on the identical basis of non-public liberty as crypto, is of course positioned to guide the world in its growth. Sadly, U.S. regulators have till now refused to adapt present legal guidelines to digital belongings and the blockchains that underpin them (and even to elucidate why not), and created an unfavorable enterprise setting 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 under forward-looking insurance policies throughout three areas: supporting U.S. firms; selling crypto values similar to privateness, disintermediation, and decentralization; and cultivating a positive enterprise setting domestically.
Supporting U.S.-Primarily based Companies
The crypto business has produced a spread of established and rising use-cases, together with digital gold, stablecoins, permissionless funds, decentralized finance, actual world belongings, decentralized bodily infrastructure (DePIN), and many extra. A lot of them are being responsibly superior in the USA by companies similar 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 street 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 main regulators and lay out when belongings 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 executed. Tokens powered by open-source software program and consensus mechanisms which might be in any other case minimally depending on centralized actors usually are not securities as a result of there isn’t any authorized relationship between token homeowners and an “issuer,” as understood by the securities legal guidelines. Equally, crypto belongings similar to 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. Meaning not feeling certain by prior legislative efforts like FIT21 that have been solid in an earlier political setting 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
In addition to advocating for common guidelines, your administration ought to urge Congress and the related businesses to deal with particular sectors as a consequence 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 underneath frameworks like the Stablecoin Customary and by state regulators, they warrant complete laws for his or her issuance and administration, making certain that they’re transparently backed and don’t threaten monetary stability. Except for benefitting customers, regulatory assist 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 enhance 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 customers entry to trusted custody companies. This requires amending or rescinding prejudicial SEC accounting tips (for example, SAB 121) and custody guidelines. But it surely shouldn’t cease there. Professional-innovation coverage on this space must also promote the tokenization of securities representing conventional monetary belongings 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, making certain they continue to be probably 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 abnormal People by eradicating pricey monetary intermediaries. You shouldn’t enable entrenched pursuits and alarmism to cease the USA from turning into the world’s chief in DeFi. On this regard, laws geared toward centralized actors, similar to exchanges and issuers, should 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 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 Belongings and Instruments
The primary precept impacts merchandise like self-custody wallets, which allow customers to carry and handle their very own personal 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 needs to be true for storing tokens in your digital pockets.
Related 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 presently taxes them on that earnings. This differential remedy needs to be abolished.
When To Deal with Crypto In another way
The second precept calls for regulators resist inserting crypto actors and actions into legacy frameworks which might 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 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 flawed as a matter of innovation coverage, and we encourage your administration to reverse them.
As an alternative 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 setting is definitely justified in sure cases, regulators can leverage blockchain-based credentials which might 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 financial system.
Attracting Prime Expertise With a Welcoming Enterprise Surroundings
To change into the main vacation spot for prime crypto expertise, the U.S. should domesticate a positive enterprise setting. 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 instantly stop their unaccountable marketing campaign geared 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 strategy to crypto. Over the previous 4 years, the SEC has persistently exceeded its authority by pursuing good religion business leaders similar 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 appropriate this pernicious strategy and start participating constructively with the crypto business whereas focusing its efforts on stopping fraud slightly 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 how one can 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 buyers and a repeal of IRS reporting laws that deal with web sites as brokers. Congress must also repeal amendments to Part 6050I, which impose burdensome (and certain unconstitutional) reporting necessities on crypto transactions over $10,000.
Scale back pointless crimson 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 scale back the pointless crimson 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 must also take into account legislating a unified federal framework for cash transmission licensing that will deliver 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 path.) We additionally advocate leveraging gadgets, similar to regulatory sandboxes, that restrict the danger of unintended regulatory penalties.
The time is ripe for the USA to start asserting its world regulatory management. By making certain 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.
