Source: CoinDesk

Compiled by: Baishuei, Jinse Finance

Foreword

Over 20 lawyers working in the cryptocurrency industry have written an open letter outlining how the incoming Trump administration can create a legal environment favorable to the development of cryptocurrencies. This letter, exclusively published by CoinDesk, covers the regulation of the SEC and CFTC, potential legislation on stablecoins and DeFi, as well as tax cuts and simplification of procedures.

The original text of the letter is as follows:

Dear President-elect Trump:

Last year, you gave a keynote address at the Bitcoin conference in Nashville, promising to make America the world capital of cryptocurrencies if re-elected. As you return to the Oval Office this week, we, as members of the Crypto Law Lawyers Association, write to you to recommend regulatory policies that can help you achieve this goal.

America, like cryptocurrencies, is fundamentally based on individual freedom, and is naturally positioned to lead the world in development. Unfortunately, US regulators have so far refused to apply existing laws to digital assets and the blockchain behind them (even refusing to explain the reasons), and have created an unfavorable business environment, forcing many entrepreneurs and developers to go overseas.

To unleash the creativity of Americans, and to make up for the neglect of the blockchain industry, we recommend that you pursue the following forward-looking policies in three areas: supporting US companies; promoting the crypto values of privacy, disintermediation and decentralization; and creating a good business environment domestically.

Support US Businesses

The cryptocurrency industry has already generated a range of mature and emerging use cases, including digital gold, stablecoins, permissionless payments, decentralized finance, real-world assets, and decentralized physical infrastructure (DePIN). Many of these use cases are being responsibly advanced in the US by companies like Coinbase, Circle and ConsenSys, as well as developers contributing to the open-source, decentralized infrastructure of cryptocurrencies. To continue competing with international competitors, these parties need clear rules and appropriate regulatory guidance.

General Rules

Token issuance and secondary market sales are at the core of the crypto economy, constrained by the overlapping jurisdictions of the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which are confusing. Market structure legislation should clearly delineate the jurisdiction of the primary regulatory agencies and specify when assets enter and exit that jurisdiction.

In this regard, Congress should avoid letting the US securities laws apply too broadly, as the SEC has done. Tokens driven by open-source software and consensus mechanisms, with minimal reliance on centralized participants in other respects, are not securities, as there is no legal relationship between token holders and "issuers" as defined by securities laws. Similarly, crypto assets like art NFTs (merely digital art) and non-investment activities (such as staking and lending Bitcoin) are also outside the jurisdiction of securities laws.

Congress should be bolder. This means not being constrained by previous legislative efforts like FIT21, which were shaped by an early political environment and had unintended consequences. It also means leveraging the regulatory experience of other countries, such as the EU's MiCA framework, while avoiding their pitfalls, to chart a unique and fearless path forward for America.

Specific Industries

In addition to advocating for general rules, your administration should urge Congress and relevant agencies to address issues in specific areas that are strategically important to the crypto industry and the country.

Stablecoins. Stablecoins currently have a market capitalization of over $200 billion and are the lifeblood of the digital asset ecosystem. As they gain increasing acceptance in frameworks like stablecoin standards and recognition by national regulators, comprehensive legislation is needed to ensure their issuance and management is transparent and does not threaten financial stability. In addition to benefiting consumers, regulatory support for stablecoins also serves national interests. Like the euro, stablecoins typically denominated in US dollars consolidate the dollar's status as a global reserve currency and increase demand for US Treasuries held by issuers.

TradFi Integration. The unprecedented success of Bitcoin and Ethereum ETFs shows that cryptocurrencies are beginning to integrate with traditional finance. Regulatory policy should ensure safe and orderly integration, allowing consumers access to trusted custodial services. This requires amending or repealing biased SEC accounting standards (e.g. SAB 121) and custody rules. But it should not stop there. Innovation-supporting policies in this area should also drive the tokenization of traditional financial assets like stocks, bonds or real estate into blockchain-based tokens. The resulting benefits include increased liquidity, fractional ownership, and faster settlement, which will strengthen the US capital markets and ensure they remain the most developed and innovative in the world.

DeFi. Decentralized finance has the potential to modernize the global financial system and bring value to ordinary Americans by eliminating expensive financial intermediaries. You should not let vested interests and alarmism prevent the US from becoming a world leader in DeFi. In this regard, regulation targeting centralized participants like exchanges and issuers must be crafted in a way that avoids inadvertently capturing and crippling the still-nascent DeFi ecosystem.

Promoting Innovation Through a Commitment to Crypto Values

To promote cryptocurrency innovation, regulatory policy must respect the values of cryptocurrencies, including privacy, disintermediation and decentralization. This commitment yields two key regulatory principles. First, where traditional analogues exist, regulation should not impose greater burdens on cryptocurrencies. Second, regulation should evolve where traditional analogues are lacking.

When to Treat Cryptocurrencies Equally with Traditional Assets and Tools

The first principle impacts products like self-custodial wallets, which allow users to hold and manage their own private keys. Since these tools are analogous to physical wallets used for personal asset management, they should not be treated any differently - i.e. as financial intermediaries subject to regulatory oversight and monitoring. You do not need to complete KYC to deposit cash in a physical wallet; storing tokens in a digital wallet should be the same.

Similar logic applies to the taxation of block rewards. Americans mining or validating blockchain transactions are creating new property, just as farmers grow crops in their fields. Yet the IRS currently taxes their income. This differential treatment should be eliminated.

When to Differentiate Cryptocurrencies

The second principle requires regulators to resist placing cryptocurrency participants and activities into legacy frameworks incompatible with cryptocurrencies. Doing so would disrupt the cryptocurrency ecosystem, push the industry overseas, and erode the rule of law.

Regrettably, this is the path many US regulators have chosen.

The IRS has begun treating the front-end of cryptocurrencies as "brokers" without statutory authority. The Department of Justice has started prosecuting non-custodial wallet developers for unlicensed money transmission, despite its long-standing policy to the contrary. The Treasury Department has sanctioned the Tornado Cash smart contract, even though it is neither a foreign person nor property, but merely code. (An appeals court has since overturned this sanction.)

Without diminishing the importance of government interests (tax evasion, money laundering, and national security), we believe the government's approach in each case has been wrong from an innovation policy standpoint, and we encourage your administration to reverse these actions.

We urge regulators not to regulate digital assets and blockchain companies the same way they regulate traditional companies, but to collaborate with this new technology paradigm and our industry. For example, if in certain cases government monitoring (KYC) in a decentralized environment is actually reasonable, regulators can leverage blockchain-based credentials that are cross-protocol portable, allowing users to control their own data (the advantage of Web3 architecture), and remain consistent with the frictionless blockchain ecosystem. Similarly, they can integrate the programmability of tokens and smart contracts to exclude sanctioned parties from the crypto economy.

Attract top talent through a favorable business environment

To become the destination of choice for top crypto talent, the United States must create a favorable business environment. Your government can start this process on day one.

End the de-banking of crypto companies. Your government should direct the Federal Deposit Insurance Corporation (FDIC) and all other agencies involved in Operation Chokepoint 2.0 to immediately cease their irresponsible activities aimed at de-banking the crypto industry.

Improve SEC rulemaking and enforcement. You should direct your SEC Chair to thoroughly reform the agency's approach to crypto. Over the past four years, the SEC has overstepped its authority, holding accountable industry leaders like Coinbase and ConsenSys for good-faith actions, regulating individual developers and users (redefining rules in their exchanges), and taking enforcement actions against wallet providers. Now is the time for the SEC to correct this harmful practice and begin constructive engagement with the crypto industry, focusing its efforts on preventing fraud rather than suppressing financial speculation, which is beneficial for innovation.

Eliminate punitive tax rules. Your government should eliminate the punitive tax rules that push entrepreneurs and developers overseas, while leaving well-intentioned taxpayers uncertain how to calculate their tax bills. Low-hanging fruit improvements include adopting current expensing for software development; deferring taxation on rewards and airdrops; a safe harbor for de minimis consumption transactions (e.g., under $5,000); a mark-to-market election for crypto investors; and repealing the IRS reporting provision that treats websites as brokers. Congress should also repeal the amendment to Section 6050I, which imposes onerous (and potentially unconstitutional) reporting requirements on crypto transactions over $10,000.

Reduce unnecessary red tape. Consistent with the mission of the Department of Good Efficiency (D.O.G.E.), we urge your office to work with Congress and government agencies to reduce unnecessary red tape that restricts cryptocurrencies and fintech. This includes simplifying or eliminating registration and reporting requirements for certain qualified digital asset issuances, including providing necessary investor disclosures. Congress should also consider legislation to establish a unified federal money transmission licensing framework, bringing clarity and efficiency to the broader fintech ecosystem.

As you pursue these forward-looking policies, we encourage your government to consult with industry leaders and remain sensitive to the cross-border nature of the digital asset ecosystem. (We believe your establishment of a Cryptocurrency Council is a positive step in this direction.) We also suggest utilizing tools like regulatory sandboxes to limit the risk of unintended regulatory consequences.

Now is the time for the United States to establish its global regulatory leadership. By ensuring this, your government will contribute to the country's future economic prosperity and support a technology rooted in America's deep-seated values and freedoms. You should seize the opportunity.

Sincerely,

Ivo Entchev, Olta Andoni, Stephen Rutenberg, Donna Redel

The following members of the Crypto Law Lawyers Association also 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.