Stability and the full potential of blockchain technology could be achieved with an open and uniform legal framework.
Within a month of President Trump’s inauguration, the federal government’s stance on Bitcoin changes. The SEC is relaxing its pressure on Coinbase, Consensys, Robinhood, and Gemini, three other big cryptocurrency businesses.
Under former Chair Gary Gensler, the SEC pursued digital assets for years, claiming most were unregistered securities. Innovative companies struggled in a political and ambiguous regulatory environment. Federal enforcement looks to be declining.
This may appear to be a big sector success, but it raises the question: Since regulatory policy changes with every administration, businesses and investors suffer perpetual uncertainty. Presidents shouldn’t decide the US’ cryptocurrency policy. Instead, lawmakers should create a clear, reliable framework so companies can plan and protect consumers.
Gensler’s SEC considered several digital currencies “investment contracts” using the 1946 Howey test. This guideline stipulates that a security asset must meet all of the following criteria:
- Individuals or organizations fund capital investments.
- Common enterprise investments include multiple investors funding a single business or project.
- Investors hope to profit.
- The expected earnings depend on an outside manager or entrepreneur.
Coinbase and the crypto industry agree that most digital assets fail these requirements. According to Coinbase, buying a crypto token does not always mean investing in a shared company or relying on outside management to make money. However, the SEC has previously argued that many tokens met these conditions and should be regulated as securities. Despite crypto firms’ best efforts to comply with unclear standards, Gensler’s SEC quickly filed charges, compelling several ideas to go abroad.
This strong approach failed to meet Gensler’s goals and prevent several major crypto disasters. Gensler’s mismanagement of TerraUSD, Celsius, Three Arrows Capital, and FTX cost investors billions and showed the limits of an improvised regime.
After Paul Atkins’ selection to lead the SEC and the agency’s subsequent retreat from aggressive enforcement, bitcoin entrepreneurs believe innovation will be encouraged. For an innovation-friendly workplace, unambiguous policies that don’t switch compliance philosophies are enough.
Because of this, Congress should act. Several solutions are being examined to make digital asset regulation more transparent and clarify the SEC and CFTC’s roles:
The Financial Innovation and Technology for the 21st Century Act: outlines the measures needed for the SEC to recognize and regulate cryptocurrencies. SEC oversight of digital assets is clarified. After passing the House, the legislation reached the Senate in September 2024.
The Digital Asset Market Structure and Investor Protection Act mandates electronic creation, secure transaction history keeping, and decentralized transferability. It also protects investors and promotes market openness. The legislation is in its early legislative phase since many House committees are evaluating it.
The Responsible Financial Innovation Act would give the SEC power over a company’s financial digital assets, while the CFTC would regulate others. If the measure passes, depository institutions can create 100%-reserve-backed payment stablecoins with a one-to-one redemption ratio. Digital asset exchanges can also register with CFTC. It also includes consumer protection, studies, and reports to ensure transparency and tax exemptions for small digital asset transactions.
BRIDGE: Global and Electronic Digital Regulation and Innovation A committee advises the SEC and CFTC on digital asset policy and regulation under the Digital Assets Act. Both agencies will co-chair the committee. It aligns the two agencies’ regulatory policies. At least 20 non-federal committee members will be digital asset issuers, registered entities, and industry participants. It must report to the two regulatory agencies twice a year.
Two major stablecoin proposals may pave the way for fiat-based digital dollars:
The Clarity for Payment Stablecoins Act:
Sets precise reporting rules for fiat-backed stablecoin issuers to increase transparency and accountability. The law requires reserves to be stored in U.S. dollars, government securities, properly collateralized security repurchase agreements, or other non-digital currencies. Issuers must have third parties review their monthly reserve holdings reports on their website. The Committee on Financial Services revised the legislation in May 2024 and is slated for further review.
The Lummis-Gillibrand Payment Stablecoins Act
Would regulate payment stablecoins and require one-to-one reserves to ensure stability. It mandates issuers to hold enough reserves and prevents unbacked algorithmic stablecoins to protect users. The bill is in its early stages of legislative procedure.
Skeptics claimed that the Obama administration’s Department of Justice had debanked politically disfavored industries, citing President Joe Biden’s “Operation Choke Point 2.0” to discourage banks from serving crypto customers. Many lawful cryptocurrency enterprises have sought banking services abroad due to this atmosphere. FDIC officials and Federal Reserve Chair Jerome Powell say banks should lend to risk-mitigating bitcoin startups. They also indicated enforcement will target bad actors, not industries. The correct legal framework allows banks to welcome new businesses without hiding in business-friendly jurisdictions like Hong Kong, Singapore, or Switzerland, which boosts investment and job growth.
Opponents of looser rules highlight real concerns about fraud and market manipulation, but these issues require particular, well-defined restrictions rather than blanket allegations against entire sectors. Blockchain solutions could cut transaction fees, increase banking access in underserved areas, and lower international money transfer costs.
A comprehensive and unified legal framework could enable blockchain technology’s stability, cost reduction, financial system updates, and economic growth. To maintain drawing outstanding people from throughout the world, the US must ensure that cryptocurrency isn’t controlled by particular authorities but by long-lasting, fairly-discussed legislation.