Written by: Christian Catalini, Jai Massari, Rebecca Rettig
Compiled by: Block unicorn
If the United States wants to lead in cryptocurrency, artificial intelligence, and other cutting-edge technologies, it needs to establish clear rules that recognize the value these innovations can bring to the economy, especially by restoring competitiveness in the tech sector. Unfortunately, neither presidential candidate seems to realize this.
CAMBRIDGE — The cryptocurrency industry is going all-in on this November’s U.S. presidential election, pouring hundreds of millions of dollars into supporting candidates who might push for sensible regulation. Yet despite the massive investments — the industry has become the most funded sector this cycle — it remains unclear how the two candidates will approach the issue and prioritize supporting builders over speculators.
Casual observers may have heard that Republican candidate and former President Donald Trump has come out in support of the cause. At a recent Bitcoin conference, he pledged to make the United States the "cryptocurrency capital of the world," establish a strategic Bitcoin reserve, and accept the use of stablecoins. The audience responded enthusiastically. However, Trump's aggressive propaganda highlights the biggest challenge facing the industry: For too long, those who want to use the technology for financial speculation have dominated the policy debate, while those who really want to use it to build some substantive results have been marginalized.
Democratic nominee Vice President Kamala Harris has been largely silent on the topic, but now she has an opportunity to propose more thoughtful, progressive policies for financial innovation. Cryptocurrency policy, like AI policy, is fundamentally about innovation and national competitiveness. For the United States to become a leader in this strategic area, the next administration must first replace the current crop of financial regulators who are hostile to cryptocurrency, particularly SEC Chairman Gary Gensler, who has consistently refused to engage in meaningful dialogue with the industry.
But simply appointing regulators who are more sympathetic to the quick-profit mentality will not improve things either. Cryptocurrency’s greatest strength — its ability to incentivize the construction of open networks — is also its greatest liability. Like the railroad mania of the 19th century, cryptocurrencies have fueled the construction of valuable new infrastructure, but have also been used by irresponsible individuals to commit scams and fraud — SBF (founder of FTX) is a prime example of someone who knows how to game the existing imperfect regulatory framework.
Those businesses that engage in mere speculation or even outright fraud have benefited the most from the current regulatory chaos. Worse still, many who have proactively advocated for regulation or tried to work with regulators have been hit with enforcement actions, causing them to lose access to necessary banking services.
Regulators often lack the motivation to adapt existing rules to new technologies, and existing stakeholders often give them reasons to maintain the status quo. In the cryptocurrency space, accountability for criminal behavior has come too late or not at all, resulting in consumer losses. In the absence of clear regulation, market participants with established businesses or who need banking services are often reluctant to explore the technology, regardless of its potential. As a result, a system that encourages recklessness and fraud is taking shape, while innovators who want to improve payment systems, reform the financial industry, protect data privacy, or address the market dominance of technology giants are hindered.
Thoughtful cryptocurrency regulation will require more than Trump’s pandering, and this issue goes far beyond cryptocurrencies. If the United States is to maintain its lead in artificial intelligence, defense, and other fields, it needs to enact rules that recognize the enormous value these innovation-intensive industries bring to the overall economy, especially by restoring competition. This is a complex task, and success depends on more than just wooing Bitcoin’s extreme supporters or simply allowing stablecoins to exist.
Considering Trump’s suggestion that the U.S. government hold Bitcoin as a strategic asset, while this would obviously be bullish for Bitcoin’s price, it is hard to see how it would serve the national interest. Instead, the federal government should consider blockchain-based networks as critical infrastructure, similar to 5G.
Nor should governments blindly support domestic bitcoin mining without encouraging ways to harness renewable and stranded energy or support increasingly fragile grids (as seen in Texas). Regulation should consider how bitcoin mining and chip manufacturing can contribute to national security while ensuring minimal impact on the environment.
In his speech in Nashville, Trump accused the Biden administration of targeting cryptocurrency businesses’ relationships with banks. But the real problem is a regulatory and supervisory environment that makes it difficult for banks to safely participate in the cryptocurrency business. Many banks recognize that digital payments and assets will play an important role in the financial system, but they are constrained by unreasonable regulations like Staff Accounting Bulletin No. 121 (SAB 121), which imposes punitive accounting standards on companies without the ability to privately explore exceptions with SEC staff.
Trump has also pledged to support stablecoins to strengthen the dollar’s dominance. But again, the issue is more complex than it seems. To prevent the market from becoming too concentrated, as it has in the credit card industry, the U.S. needs to foster a competitive environment for stablecoin issuance. The dominant use case should not be dollarization, as that goal could weaken capital controls, destabilize emerging economies, and undermine the effectiveness of sanctions. Instead, legislation should ensure that stablecoins become a safe means of payment that supports instant global transactions.
Achieving this vision requires a strong compliance framework. Current stablecoin issuers either don’t know or don’t want to know whether their digital dollars are held by sanctioned countries or criminals, but this dangerous blind spot is a major barrier to mainstream adoption. Crypto entrepreneurs need to develop innovative solutions to address identification and compliance challenges, but progress in these areas has been very limited to date. New regulations need to strengthen incentives for the private sector to do the hard work.
Ultimately, policymakers in Washington must come together to write new rules, rather than trying to shoehorn cryptocurrency use cases into nearly a century-old law. At the same time, the industry itself needs to address the many issues that traditional financial services and cryptocurrency leaders have long ignored. A thoughtful cryptocurrency policy should prioritize builders, not speculators. Its potential, like the early days of the Internet, is to revitalize industries that have long lacked competition.
