With the Trump transition team continuing to make headlines, recently with the nomination of Paul Atkins to serve as SEC Commissioner, the excitement and optimism around bitcoin and crypto continues to increase. As the token itself exceeded the $100,000 level, XRP rebounds to fresh-all-time highs following years of languishing due to SEC legal actions, and talks of strategic bitcoin reserves evolve, crypto policy advocates are justifiably looking forward to 2025. That said, the reality remains that U.S. financial markets are not only incredibly large and complicated, but are also integral to the smooth functioning of global financial markets. Any tinkering or tweaking of how assets are regulated, treated, and incorporated into the dollar-based market system needs to be approached with the seriousness it deserves.
This deliberative pace of change that is required is also why, for good or bad, the likelihood of a U.S. central bank digital currency CBDC is an event that remains years in the future. On the other hand, and acknowledging that many crypto policy advocates celebrate the lack of a U.S. CBDC, the pace of change in legislative circles is likely to lead to some levels of frustration among crypto policy circles. Given that, crypto policy advocates would be well served to focus efforts on enacting change in targeted areas. Let’s take a look at a few of them below.
Broader Safe Harbor Rules
The crypto sector has long been operating and seeking to navigate a contentious and litigious environment under the Biden administration and the tenure of Gary Gensler. Although multiple public statements and comments were made that crypto entrepreneurs and firms were welcome to register with the SEC the facts bore out another reality. An example often cited is that the SEC even engaged in legal action with Coinbase, an SEC registrant, several years after the organization became a publicly traded organization. The SEC has an important mandate to protect investors, and this mandate must be fulfilled, but the lawsuit-first approach that has been embraced by the SEC looks set to be mitigated.
Even if the tenure of the next SEC chair is not universally pro-crypto, one policy step that should be pursued – and could be implemented – is the establishment and expansion of Safe Harbor for crypto organizations. In addition to this step, an additional item that could be implemented is that a window could be opened to let organizations, regardless of how long operations had been in the U.S., have no-fault reviews conducted to allow what necessary adjustments need to be made.
In short, the SEC should implement an open-door policy to let new firms grow and innovate as well as established firms to work with the SEC in order to address outstanding issues.
Increased Stablecoin Exemption
Something that is (relatively) low-hanging fruit from a policy perspective is that tax treatment and exemptions for stablecoins should be revisited and expanded. While qualifying stablecoin transactions, at the time of this writing, are exempted from full reporting disclosures and regulations if the total is under $25,000, this is insufficient for further stablecoin adoption and integration. Easing reporting and other compliance requirements for smaller users of stablecoins is an excellent first step toward wider usage and adoption, but an additional step related to the actual tax treatment of stablecoins should be on the table.
Formal tax changes require an alteration to the tax code, and by extension it would take an act of Congress, so the likelihood of formal changes to code being enacted remain relatively small. That said, there are other policy measures that can be implemented to install – albeit possibly at a temporary level – tax carve outs and exemptions for stablecoins. Even though these specific instruments are purpose built to trade on a 1:1 basis transactions involving stablecoins still create tax reporting and potentially payment obligations.
A singular step that policymakers could work on is establishing, even on a temporary basis, an exemption for stablecoins from taxes. Since these assets are not speculative in nature, are built to trade at parity to the dollar, and tend to be used for transactions this would also not be seen as encouraging speculative behavior.
Clarify What Crypto Is
A simple yet important item of policy that should be focused on, and would not require the drafting of new legislation or more complex activities is to define 1) what different cryptoassets are and represent, and 2) which agency oversees which aspects of the crypto sector. Depending on the subset of crypto being examined the list of potential regulators can include the SEC, IRS, CFTC, OCC, and any number of state agencies. A long-running debate and question that has proven an obstacle to the sector is whether cryptoassets represent equities instruments or commodities, with bitcoin representing the only token to have explicitly identified as a commodity under the current SEC regime.
As tokenization and stablecoins continue to expand and attract inflows and investors the importance of this clarification will only become more critical. Crypto policy advocates and investors would be well served to focus on establishing guardrails, frameworks, and delineations between the various sectors of the wider crypto marketplace.
Crypto prices are making headlines, but investors and advocates should also focus on the measurable and quantifiable steps that can be achieved to encourage mainstream adoption and utilization.
