- The White House crypto report calls for long-lasting, positive reforms to the digital assets market.
- It makes several calls for “safe harbours” and regulatory exemptions for certain aspects of crypto assets, airdrops, and other crypto features.
- It recommends that the SEC and CFTC have clearly defined roles and jurisdictions going forward.
Shortly after he officially took the White House as U.S. President, Donald Trump, by executive order, called for the government to create a crypto working group which had six months to create an in-depth report into crypto and stablecoin regulations.
This effort has culminated in the publication of the “Strengthening American Leadership in Digital Financial Technology” report.
Digital Assets
On the regulatory front, the report is critical of Biden-era enforcement actions by the Securities and Exchange Commission (SEC) under its vague definition of what constitutes a security, as well as oversight from the Commodities Futures Trading Commission (CFTC).
It notes that an “express goal” of Trump’s administration is to reduce “unnecessary” regulations, and “avoid new burdensome” ones.
To that end, it says it’s essential to understand the workings of the two agencies in order to create an efficient and fair taxonomy for digital assets.
“The CFTC should have clear authority to regulate spot markets in non-security digital assets. SEC
and CFTC registrants should be permitted to engage in multiple business lines under the most
efficient licensing structure possible, ensuring a clear and simple regulatory framework for digital
asset market activities,” the report states.
It also calls on the SEC and CFTC to establish a regulatory sandbox, or safe harbor, with clear criteria that determine which types of assets and market participants are eligible.
For example, the report asks for the SEC to establish “fit-for-purpose” exemptions under the Security Act regarding token distributions.
It calls on the SEC to use its authority to set up “time-limited” safe harbour or exemptions for certain tokens that may qualify as an investment contract, but aren’t fully functioning or are “sufficiently decentralized.”
The report also asks the SEC to consider a safe harbour from the characterization of “sales” for certain airdrops and assets distributed by decentralized physical infrastructure (DePIN).
“Moreover, there should be a clear pathway for entities to graduate from the sandbox or safe harbor,” the report states.
Notably, the report notes that there is further work to be done in the realm of decentralized finance (DeFi) by further embracing and supporting DeFi as an option for investors.
This would require new regulations to be introduced, and whilst the CLARITY Act makes several acknowledgments of this, there are still discussions to be had, it writes:
“DeFi service providers, and DeFi apps or front ends can or should be required to comply with institutional obligations under the Bank Secrecy Act (BSA)”
Stablecoins
With the GENIUS Act now in play, U.S. dollar-backed stablecoins are expected to become a major economic force.
The report recommends that “payment” stablecoins retain integrity with high-quality and liquid assets in their reserves. It notes that firms seeking to issue stablecoins on U.S. soil will need an appropriate license, which will grant them certain “modest” benefits.
Amongst its recommendations for consumer protection, it recommends that U.S. stablecoin issuers are treated as neither securities nor commodities under relevant regulations. Furthermore, they should not be treated as investment companies under relevant laws.
This includes the active discouragement, opposition, and prohibition of U.S. dollar central bank digital currencies (CBDCs).
A Lasting Impact
Overall, the 166-page report has one thing in mind: creating a long-lasting framework for digital assets.
It explains that due to the underlying tech of crypto, digital assets operate very differently to traditional stock, bond, commodity, or derivative markets, which all require a third-party intermediary to execute and settle trades.
There’s still a lack of clarity regarding which portions of the market the SEC and CFTC will have jurisdiction over, issues with DeFi, NFTs, as well as open source and automated systems.
The report celebrates the Donald Trump administration’s pro-innovation, consumer-safety-focused approach to regulating crypto, but it notes that there’s plenty more work to be done.
