Donald Trump’s victory in the 2024 US presidential election has had repercussions on the crypto industry, signaling what could be a seismic shift in the US regulatory landscape.
To understand the implications of this policy shift, we spoke with Lewis R. Cohen, a leading authority on cryptocurrency law and partner at Cahill Gordon & Reindel LLP. With extensive experience at the intersection of blockchain technology and regulatory frameworks, Cohen provides unique insights into what may be the most significant regulatory pivot for the crypto industry since its inception.
What immediate changes can we expect in crypto regulation under Trump’s second term, particularly regarding major regulatory agencies like the SEC and CFTC?
The most immediate impact will come from leadership transitions at key regulatory agencies. At the SEC, there are some constraints – Gary Gensler’s term runs until 2026 and we can’t just remove sitting commissioners – we could see Commissioner Hester Peirce step in as interim chair.
But the truly rapid changes could happen at other agencies. The CFPB director can be removed without cause, and at the OCC, Acting Comptroller Hsu can be replaced immediately. These changes would automatically move the FDIC board under Republican control. At the CFTC, we could see either Commissioner Pham or Mersinger take the helm.
There is talk of moving from “regulation by enforcement” to a different approach. Could you explain to us what this new regulatory philosophy could look like?
Based on what we observed during Trump’s first term, we are seeing a fundamental shift in the philosophy of regulation. Instead of the current “gotcha” approach focused on technical violations such as registration failures, we expect to see enforcement priorities realign with managing real market risks – think fraud, market manipulation and serious misconduct that harms investors.
The main difference will be in the way the files are processed. You will likely see more balanced settlement terms, particularly in cases of technical violations, and more practical remediation requirements. But let me be clear: this does not mean that there are no applications. Rather, it is about taking a more nuanced, market-friendly approach, focused on correcting information asymmetries while allowing innovation to flourish. This is regulation with a scalpel rather than a sledgehammer.
How do you see the classification of major cryptocurrencies evolving, particularly regarding tokens like SOL, ADA and AVAX, in relation to the commodity status of ETH?
We are seeing a significant change in the crypto classification landscape. The SEC recognizes both BTC and ETH as commodities, and recent court rulings have further complicated attempts to classify all tokens under a general security designation.
These tokens like SOL, ADA, AVAX and DOT share fundamental characteristics with ETH. Recent court rulings regarding BNB and XRP secondary market transactions also hint at a more nuanced regulatory approach. In practical terms, this means that trading and other third-party activities involving these assets would likely carry significantly reduced securities law risks. The market is maturing and our regulatory framework must reflect this reality.
Could you explain the planned timeline for these regulatory changes? When could the industry start to see concrete impacts?
The timeline here is pretty clear. Although the transition period will be crucial, with the current administration likely taking last-minute actions, we expect significant changes in the first two quarters of 2025.
Broader policy changes will occur over the next 6 to 12 months. Some changes, such as at the CFPB and the OCC, can happen quickly through leadership transitions, but others, notably at the SEC, will take longer due to the staggering of commissioners’ terms.
How might state-level regulation, particularly in traditionally strict jurisdictions like New York, respond to this potential federal deregulation?
Here’s an interesting dynamic to observe: as federal oversight becomes more lenient, we may actually see more aggressive enforcement at the state level, particularly in jurisdictions like New York that have historically taken a harder line on of cryptography. The irony is that a more business-friendly approach within federal agencies like the SEC could actually reduce the urgency for comprehensive federal legislation.
When this happens, states traditionally skeptical of crypto activities often step up their enforcement efforts to close what they perceive as a regulatory gap. This could create a complex patchwork of compliance requirements for industry players.
What are the prospects for crypto legislation in Congress, particularly as it relates to existing bills and bipartisan efforts?
The landscape in Congress is changing significantly. Although the House-passed FIT21 bill likely won’t move forward, I’m more interested in the thoughtful market structure legislation being developed in the Senate. Senator Lummis and others have spent years building a bipartisan coalition, and this groundwork will likely serve as the basis for new legislation.
However, here’s an interesting aspect: with a more accommodative regulatory approach within federal agencies, we might see less urgency for comprehensive legislation. Market participants may find that administrative rules are sufficient to meet their immediate needs.
Regarding Trump’s crypto advocacy, does this have anything to do with the US-China rivalry?
It’s difficult to fully understand what’s going on behind the scenes, especially with Trump. In my opinion, it is relevant, but it is difficult to determine exactly how. A major problem is the distribution of the US national debt, particularly China being one of the largest holders after Japan.
Tokenization could potentially play an important role here. By tokenizing dollar-denominated debt, particularly government debt, the United States could diversify and stop relying so much on China as a key holder. This could strengthen the United States’ financial position and reduce its dependence on China, which, in turn, could influence the broader geopolitical landscape.
I’d like to believe that thoughtful people within the US government recognize the importance of this, but it’s really hard to tell if that is the case. The relationship is incredibly complex, and while it makes sense to view these measures as strategic, it’s not entirely clear whether that’s the driving force behind this change.
Trump spoke of creating a federal Bitcoin reserve. How realistic is this proposal?
Honestly, I’m quite skeptical that there is widespread support for the idea of using crypto as a strategic reserve asset, and I’m not even convinced it’s a good idea. If I were a Bitcoin supporter, the last thing I would want is for the government to control a large amount of Bitcoin. Sure, Trump might be a supporter right now, but what happens if the next administration doesn’t? They could easily decide to dump a massive amount of Bitcoin on the market, which could cause the price to plummet and cause chaos.
While some people may see this as the government endorsing the importance of Bitcoin, I think that misses the point. The true value of Bitcoin is not about hitting a specific price target so people can sell it for quick profits; it’s about creating an alternative financial system.
The idea of confining a bunch of Bitcoins in the hands of the US government simply doesn’t fit this vision. There is too much volatility and too much political risk involved, so I don’t consider this a wise move.
What should the crypto industry expect during the transition period leading up to the inauguration?
The transition period will be particularly delicate. We will likely see the current administration working to finalize pending rules and potentially expedite new enforcement actions while it still has power. This is a typical “last push” scenario that we often see during transitions.
Industry players must remain particularly vigilant during this period, as it could create a complex regulatory environment in which we must both manage the latest decisions of the outgoing administration and prepare for the different approach of the incoming team. This period will essentially set the stage for the broader changes we expect to see in 2025.
Who or what do you think could be a key figure or indicator to monitor changes in the new administration’s Web 3 policies?
I think the most important figure to watch would be the person named Treasury Secretary. This role sets the tone for much of the administration’s domestic and foreign policy. Typically, a position at this level is appointed early on, sometimes even before the Secretary of State. Honestly, when it comes to crypto, the Secretary of State may not be as relevant, but the Secretary of the Treasury certainly would be.
Ideally, this would be someone at least familiar with cryptography or, at the very least, not outright hostile towards it. They don’t need to be a big supporter, but it would help if they weren’t known for being anti-crypto. This would be something to watch closely.
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