The Trump administration and the new Republican-led Congress are expected to create a friendlier government approach toward crypto assets. Among other things, leading candidates for top administration posts are known to favor a friendlier approach, including Paul Atkins, who was tapped to become chairman of the Securities & Exchange Commission. In Congress, a crypto advocate is expected to become the next chairman of the House Financial Services Committee, and House Majority Leader Steve Scalise reportedly plans to prioritize crypto legislation over the next few years. First 100 days of the new Congress.
What does all this mean? Let’s look at the SEC first, then Congress.
The SEC
The SEC has some latitude to facilitate public offerings and trading of digital assets, particularly if it adopts rules specifically tailored to those assets. One could imagine, for example, special rules for registering token offerings, or special rules for regulating digital asset trading markets.
The SEC applied its traditional “Howey” investment company analysis to determine whether digital assets are “securities” subject to its regulation. This is not surprising because this analysis has been applied to other types of assets that are not traditional common or preferred stocks. Examples include joint ownership and interests in fruit orchards. Additionally, the Supreme Court has repeatedly approved the SEC’s approach, which limits the SEC’s latitude in the absence of new legislation.
Does Supreme Court precedent mean that the SEC does not have the ability to relax its regulations that govern digital assets? The SEC may still have discretion to adopt new rules and interpretations that facilitate digital offerings and trading of digital assets, but largely within the existing framework of the Securities Act and the Exchange Act. This means, for example, that new rules and interpretations could adapt current registration and exemption requirements for token offerings and associated trading markets. The legislation could, however, allow for more fundamental changes.
Legislation
Last May, the House passed H.R. 4763, Financial Reporting for Technology for the 21st Century Act, commonly known as “FIT 21”. Although the legislation faced expected resistance in the Senate, it could foreshadow the SEC’s path forward without legislation, or without legislation that the next Congress might pass.
FIT 21 would create a specialized regulatory framework for digital assets that the SEC and CFTC would oversee. In essence, this would remove the “investment contract” (or “Howey”) analysis that the SEC has relied on to bring many crypto enforcement cases, from determining whether a digital asset is a “restricted digital asset” subject to agency rules. jurisdiction. Fit 21 would further establish that digital assets associated with decentralized blockchains would be considered products subject to the jurisdiction of the CFTC. If the legislation were to become law, much would need to be fleshed out when rules were later adopted for its implementation. The legislation would require certain public disclosures, regulation of commercial intermediaries and include anti-fraud provisions, but it would apparently treat digital assets more categorically and potentially eliminate the SEC’s current case-by-case investigations into whether a digital l he asset involves the regulated sale of an investment.
The next step
What happens next depends on several variables, and the testimony provided by the candidate for SEC chairman may provide some clues.
