Crypto Executive Order
VeradiVerdict - Issue #322
Many of the top crypto entrepreneurs are Americans, but many have had to leave because of regulatory uncertainty. This administration is taking the opportunity to reverse this trend and make the US a leader that invites crypto innovation.
The highly anticipated Crypto Executive Order was signed on Jan 23rd. In my last blog I touched on predictions on changes to crypto policy. Some have already come to fruition while even more promising decisions have been made. Let’s go through some of them.
Implemented Policy
On his very first day in office, Trump signed 26 executive orders. In his first term, he signed just 33 orders in his first 100 days. Since executive orders do not require Congress approval and stand until possibly being struck down by federal courts, they have become efficient ways to enact rules, no matter how far-reaching.
The two executive orders related to crypto are:
Strengthening American Leadership in Digital Financial Technology:
“Use for lawful purposes open public blockchain networks without persecution”
“Providing regulatory clarity and certainty … all of which are essential to support … innovation in digital assets, permissionless blockchains, and distributed ledger technologies”
“Promoting and protecting the sovereignty of the United States dollar, including through actions to promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide”
“taking measures to protect Americans from the risks of Central Bank Digital Currencies (CBDCs)”
Establishment of the President‘s Working Group on Digital Asset Markets, chaired by Special Advisor for AI and Crypto, and have members like the chair of the SEC and CFTC
“Within 180 days of the date of this order, the Working Group shall submit a report to the President … which shall recommend regulatory and legislative proposals”
“The Working Group shall evaluate the potential creation and maintenance of a national digital asset stockpile and propose criteria for establishing such a stockpile, potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts.”
President’s Council of Advisors on Science and Technology
“Establish the President’s Council of Advisors on Science and Technology (PCAST) … composed of not more than 24 members. The Assistant to the President for Science and Technology (APST) and the Special Advisor for AI & Crypto shall be members of the PCAST.”
SAB 121 was rescinded by SAB 122. SAB 121 directed banks to count customers’ crypto assets on their own balance sheets, treating crypto as a liability. Now, crypto is to be counted according to the Financial Accounting Standards Board rules.
Senate Banking Committee Chair Tim Scott named Senator Cynthia Lummis as the chair of the new Senate panel focused on digital assets. This panel’s focus is twofold:
“Passing bipartisan digital asset legislation that promotes responsible innovation and protects consumers, including market structure, stablecoins and a strategic bitcoin reserve.”
“Conducting robust oversight over Federal financial regulators to ensure those agencies are following the law, including by ensuring Operation Chokepoint 2.0 never happens again.”
Travis Hill also became the Acting Chairman of the Federal Deposit Insurance Corporation (FDIC). The statement lists the following focuses:
“Improve the bank merger approval process and replace the 2024 Statement of Policy to ensure that merger transactions that satisfy the Bank Merger Act are approved in a timely way.”
“Encourage more de novo activity so there is a healthy pipeline of new entrants in the banking sector.”
“Adopt a more open-minded approach to innovation and technology adoption, including (1) a more transparent approach to fintech partnerships and to digital assets and tokenization,”
The SEC acting chairman Mark T. Uyeda also announced a new crypto task force led by Commissioner Hester Peirce and supported by Richard Gabbert and Taylor Asher. The department acknowledged that the SEC has “relied primarily on enforcement actions to regulate crypto retroactively” which “creates an environment hostile to innovation and conducive to fraud.” This task force is to help the SEC “draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.”
The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better.
Ross Ulbricht (Silk Road founder) was also pardoned, as Trump had promised.
Future Opportunities
Many of the changes stated earlier are frameworks for work to be done. Here are some possibilities:
SAB 122:
Banks begin offering crypto accounts (wallets) and begin creating inter-banking exchanges and settlements.
DeFi, custody, trading, and NFT projects can partner with banks to directly offer these products to users.
Crypto funds can now access retail or private wealth user base because banks can now custody crypto easier.
FDIC banking acquisition focus:
Crypto companies partnering or acquiring (or vice versa) banks for banking licenses. This would supercharge adoption, as acquisitions cannot be undone.
Crypto Working Group:
Legal clarity between core crypto building blocks, like NFT’s, DAO’s, ERC20, etc. They may be defined as commodities, securities, or collectables.
Suggestion of Bitcoin stockpile (not selling current Bitcoin holdings) and expansion (purchasing Bitcoins). Actually implementing this would require congressional authorization.
SEC Crypto Task force:
Fewer SEC lawsuits and the dismissal of current lawsuits/Wells notices
Clear guidelines with community input to create clear crypto guidelines.
Some future frameworks that have yet to be announced.
Tax considerations:
There has yet to be tax law changes, which can treat crypto preferentially. Also, business tax law can be changed to support crypto as payments or accounting.
Master accounts:
Having a master account allows for direct access to the Federal Reserve’s payment infrastructure. No crypto exchanges have been approved for access (Kraken, etc), though many have applied. Federal Reserve Banks have rejected many of these applications citing concerns of crypto activities. Pressure from the SEC could change this.
Crypto Working Group:
The members of the working group have yet to be announced but would directly support the companies whom the members come from.
Optimism
I am very optimistic that NOW is the big unlock crypto has been waiting for, which will supercharge user growth and bring crypto to the masses. The strength of the crypto voter in November shows that crypto is important to people and the administration is finally listening.
There are now the proper regulatory teams with supportive mandates in place, like the Presidential Exec Order providing resources to understand crypto, the SEC’s crypto task force, SAB 122, and the Crypto Working Group (led by the Crypto Tzar). I’m looking forward to the Crypto Working group’s regulatory and legislative recommendations being completed within the first 180 days.
I am excited to navigate a world where we can operate with more regulatory clarity. Looking forward to what we can all build and accomplish together in the coming years.
- Paul Veradittakit
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THIS WEEK AT PANTERA
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LETS MEET UP
Singapore, February 17
Consensus, Hong Kong, February 18-20
Seoul, February 21
Walks and coffee meetings in San Francisco throughout the year!
ABOUT ME
Hi, I’m Paul Veradittakit, a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.