The non-profit cryptocurrency think tank Coin Center recently released an article titled Coin Center's Analysis of the Crypto Policy Landscape Following the Elections, exploring the cryptocurrency policy environment in the United States after the election.
The organization predicts that while some regulatory areas will improve, particularly those involving securities and banking regulations, including clearer rules for centralized secondary markets and stablecoin issuers, challenges related to anti-money laundering (AML), tax reporting, and sanctions still exist, and these challenges may scare away cryptocurrency innovators, causing them to leave the United States.
Two Major Crypto Policy Issues
Coin Center has divided crypto policy issues into two main areas:
- Surveillance Issues: Covering tax reporting, Bank Secrecy Act (BSA)/anti-money laundering (AML), and sanctions-related matters.
- Investor Protection Issues: Involving the U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and banking regulations.
Furthermore, Coin Center has divided the crypto industry into two main categories:
- Centralized businesses (such as custodial wallet providers and centralized exchanges)
- Developers and users of decentralized infrastructure (such as protocol developers and non-custodial wallet developers).
The organization reaffirms its core mission of defending the rights of developers and users of decentralized and peer-to-peer tools, and points out that regulatory actions in recent years have posed a significant threat, especially to the second group. Coin Center uses the following chart to illustrate this, where Agencies refer to the actions of past or current enforcement agencies (such as the SEC, Treasury Department, etc.), and Congress is more about the direction of future legislation.
We can see from the chart that enforcement agencies have taken more actions against developers and users of decentralized infrastructure.
Major Threats in Recent Years
Coin Center reviews the major threats facing the cryptocurrency ecosystem in recent years, including enforcement actions, the expansion of surveillance obligations, and the impact of potential legislation. At the enforcement level, the SEC has redefined the definition of "exchange" and taken action against wallet providers such as ConsenSys' Metamask and Coinbase Wallet.
In addition, surveillance-related issues have also put pressure on the crypto industry, including the tax reporting obligation under Section 6050I, sanctions against privacy tools (such as Tornado Cash), broker reporting obligations, and prosecutions for unauthorized fund transfers against non-custodial developers.
Furthermore, some legislative proposals such as CANSEE and DAMLA have imposed unreasonable surveillance obligations on non-custodial developers, exacerbating the difficulty of developing decentralized infrastructure.
Three Challenges
Amid these threats, Coin Center points out that while the U.S. crypto industry may have the opportunity to move towards a more friendly regulatory environment under Trump's presidency, it will still face three main challenges:
1) Reporting Obligation under Section 6050I
This section requires any individual who receives more than $10,000 in cryptocurrency to report to the IRS. In August last year, Coin Center argued that this reporting obligation is unconstitutional and has filed a lawsuit in court.
2) Sanctions on Tornado Cash
The core dispute in the lawsuit is whether the sanctions law grants the Treasury Department the power to prohibit U.S. persons from using immutable smart contracts, which are neither foreign individuals nor their assets (the legal basis for U.S. sanctions laws is aimed at foreign individuals or their assets).
3) Prosecutions for Unauthorized Fund Transfers
These prosecution cases have attracted widespread attention, such as the Southern District of New York's indictments against Tornado Cash and Samurai Wallet, non-custodial software developers. Although the Trump administration may change the Department of Justice's policies in the future, the Department of Justice as an independent institution may not abandon these prosecutions due to a change in government.
Is It Worth Being Optimistic After Trump's Presidency?
Finally, Coin Center points out that under the new administration led by Trump, given his supportive attitude towards cryptocurrencies and the potential appointment of crypto-friendly SEC and Treasury Department officials, some controversial rule-making may be suspended or even canceled.
However, Coin Center also states that the new administration may not reduce "overly aggressive" sanctions and anti-money laundering measures. The report mentions:
Nevertheless, if the negative impact becomes more and more apparent in the future, even under the leadership of a more crypto-friendly SEC, the excessive surveillance and control policies may still lead to the loss of innovators, hinder industry development, and deprive ordinary Americans of the opportunity to enjoy the benefits brought by these technologies, in which case we still have a glimmer of hope for future progress (because this may trigger policy adjustments).
