How might cryptocurrency regulation change under Trump and the new SEC?

President-elect Donald Trump did it pledge To make the United States the “cryptocurrency capital of the planet.” He envisions creating a strategic bitcoin reserve, restoring cryptocurrency mining, and liberalizing the sector.

Last month, Bitcoin reached a new milestone rose For more than $108,000Which sparked optimism about the future of cryptocurrency. Cryptocurrency leaders hope the new administration will work with the industry on rules rather than pursue regulation by implementation.

Intended nomination for cryptocurrency advocate Paul Atkins Taking the helm of the Securities and Exchange Commission could go a long way toward making this vision a reality.

Here are some key changes that players, policymakers and lawyers should keep in mind as they head into the new year.

Lifting restrictions

While deregulation appears to be a priority, advancing the sector requires some new rules.

Current regulations generally apply to debt securities or securities and tend to overlook those relating to investment contracts. The clarification is important because certain cryptocurrencies and ICOs may meet the definition of an “investment contract” under the Howey Test and will be subject to additional disclosure and registration requirements from the SEC.

New rules are also needed to support the cryptocurrency industry beyond the current administration. If the SEC takes a break from regulation through enforcement alone, the next administration may go right back to that strategy. Government securities regulators and private plaintiffs are likely to step up enforcement.

Implementation

The new SEC chief will also be in a position to redirect the agency’s enforcement strategy. The challenge will be to find the right balance to prevent fraudsters from destroying the industry. The industry would like to see SEC enforcement directed at clear cases of fraud and Ponzi schemes involving cryptocurrencies, rather than targeting legitimate players trying to navigate new territory.

there actually numerous Cases construction facts The circumstances necessary to conclude that the initial sales of exchangeable speculative crypto assets are securities transactions. Trump’s team appears to be treating its token as collateral in its primary sale.

While the new SEC chief cannot rewrite the case law set by his predecessors, several key open questions remain about upstream sales, such as whether airdrops directed to specific wallet addresses should be treated as sales. Initial, and whether tokens obtained while playing a game should be dealt with. They are treated as purchased in initial sales.

One of the biggest open questions is how to handle secondary trading of cryptocurrency assets. If the SEC abandons its appeals, there are several cases in which the rulings would allow US cryptocurrency exchanges to continue competing with non-US exchanges.

In Judge Annalisa Torres Ripple Labs to requestFor example, a judge takes the position that programmed trades on exchanges are not securities transactions under the Howey test. The new leadership at the SEC may follow Torres’ example and conclude that the appropriate balance is achieved if primary sale transactions are regulated by the issuer of crypto assets in raising capital with investors as securities transactions, while secondary resales on cryptocurrency exchanges Not securities transactions.

Simply solving the secondary trading problem of cryptocurrencies would go a long way to help keep crypto projects in the US. One of the most problematic areas in the adoption of blockchain technology is the fact that for crypto assets to be useful, they need to transact and transfer value at the speed of software.

It is not practical to involve a broker or dealer in every cryptocurrency transaction. FTX demonstrated the need for regulation of exchanges, but some would argue that broker-dealer regulation was not as necessary as it was for the consumer protection that is the hallmark of money transfer regulations.

Japanese consumers, for example, are largely… Averted The FTX debacle is due to the monetary authority’s rules applied to FTX (Japan regulates cryptocurrencies as a form of money, not securities).

NFTs and more

Non-fungible tokens, token commodities, token real assets, and stablecoins must be structured and sold to avoid a security situation. Unlike fungible crypto assets, these digital assets often do not meet the Howey test for investment holding.

Of course, the sale of almost anything can turn into a sale of a security depending on the facts and circumstances of the transaction. More specific guidance for cryptoassets that are not intended to be securities would be very helpful for innovators looking for regulatory predictability. Trump campaign Sold NFTs and platforms benefit from this clarification.

Guard services

Another important option is to eliminate SEC employee accounting bulletin Require public companies that hold crypto assets as custodians to report them as liabilities on their balance sheets.

This ruling has severely limited the ability of banks and other financial institutions to provide custodial services for crypto assets. The sector has matured enough to need these professional institutions for more responsible growth. The Securities and Exchange Commission (SEC) has granted waivers to these rules to select institutions and inserted itself as an arbiter to determine who can participate in the cryptocurrency sector.

Congress passed bipartisan legislation to repeal this bulletin last May, but President Joe Biden vetoed the repeal. This could change this year.

Congress appears to be preparing to enact new laws and several proposals, including a range To regulate cryptocurrencies and stablecoins invoice It can now get the momentum needed to pass it into law without the threat of a veto.

Although there is still much to be seen, there is new hope in the kind of regulatory engagement and clarity that the industry has sought for more than a decade.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or their respective owners.

Author information

Lowell Ness He is a partner at Perkins Coie and a founding member of the firm’s Blockchain Industry Group.

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