Key Points
- A Republican president and Congress are expected to be more supportive of digital assets than the current administration.
- There is a reasonable chance that legislation creating a regulatory framework for cryptocurrencies will move forward.
- Under the leadership of Republican candidate for SEC Chairman Paul Atkins, the SEC is expected to be less aggressive in its crypto enforcement and favor a more strategic approach.
- Banking regulators could reverse Biden-era policies that discouraged banks from providing custody and other services to crypto participants.
- The digital assets sector could see increased activity in the capital markets due to a more accommodating regulatory environment.
The new Trump administration and Republican-controlled Congress are likely to bring significant – and welcome for industry players – changes to the digital assets space.
Political efforts in support of cryptocurrencies have been well-organized and well-funded this cycle, with crypto super PACs pumping record sums into political races. These efforts have focused heavily on key Republican and Democratic candidates, aiming to bring together more lawmakers likely to support efforts to bring much-needed regulatory clarity to digital assets.
Many expect pro-crypto policies and lighter enforcement from the new administration.
These political efforts appear to have borne fruit. Reports indicate that nearly 300 pro-crypto candidates from both sides of the aisle were elected to the House and Senate, and bitcoin prices hit record highs following the election – a signal many anticipate pro-crypto policies and relief. application key from the new administration.
During the election campaign, President-elect Donald Trump presented himself as the pro-crypto candidate, announcing his intention to transform the United States into the “crypto capital of the world.” And in December 2024, he appointed Paul Atkins, a former member of the Securities and Exchange Commission (SEC), to replace current Chairman Gary Gensler, who was pursuing an enforcement agenda at the agency that many viewed as anti -crypto.
Many players – whether “crypto-native” or traditional financial firms and others – are eagerly waiting to see exactly what these policy changes will mean. While it is still too early to predict with certainty, below we highlight the key areas where we expect to see the most dramatic impacts.
New key players
Paul Atkins. President-elect Trump’s pick for SEC chairman served as a Republican commissioner at the agency from 2002 to 2008, during which time he expressed caution before seeking to regulate new areas. It is generally considered pro-crypto, based on a number of factors, including:
- Atkins’ recent work in digital assets.
- His reputation as a critic of over-regulation and regulation by law enforcement.
- His ties to Republican Commissioners Hester Peirce and Mark Uyeda, both of whom served as legal advisors to Atkins during his former tenure at the SEC and have been outspoken critics of the SEC’s current approach to crypto.
While it remains to be seen how Atkins will engage with crypto-related topics, many in the industry expect the focus to be on clearer guidelines for the industry, coupled with an approach lighter and more targeted application.
David Sacks. Also in December 2024, President-elect Trump nominated Sacks, a venture capitalist and former PayPal executive, to serve as the White House’s artificial intelligence (AI) and crypto czar. While Sacks is generally considered pro-innovation and a supporter of the crypto sector, some in the industry were hoping for a crypto czar with a stronger track record in favor of digital assets.
There has also been some disappointment in the industry as this role will include AI rather than being focused solely on digital assets. It remains to be seen how Sacks will divide his attention between AI and crypto, and how much power he will wield within the administration — including whether he will direct policy or simply serve in a coordinating role.
New push for crypto legislation
A new presidency is expected to breathe new life into efforts to enact laws to address the current legal uncertainty surrounding digital assets.
Last Congress, the House passed the Financial Innovation and Technology for the 21st Century Act (FIT 21) to establish a regulatory framework for digital assets and divide jurisdiction between the SEC and Commodity Futures Trading Commission (CFTC). Although FIT 21 doesn’t give the industry everything it wants, it represents the most significant effort by Congress to date.
Overall, FIT 21 divides digital assets into “restricted digital assets” subject to SEC jurisdiction and “digital products” subject to CFTC jurisdiction. How assets are distributed depends, in part, on:
- The degree of decentralization of the digital asset’s blockchain-based network or application.
- Whether the digital asset was acquired in a capital raising or secondary market transaction.
- Whether the asset is owned by the issuer or an unaffiliated third party.
In general, the law is seen as limiting the SEC’s jurisdiction because although the initial offering of a digital asset would be subject to disclosure and other requirements, once its blockchain network or application is deemed decentralized and functional, regulatory treatment – including those related to trading – would fall under the jurisdiction of the CFTC.
With Republicans controlling both houses of Congress, a pro-industry bill has a good chance of passing.
Meanwhile, members of the House Financial Services Committee sought to negotiate stable coin legislation that would be acceptable to both parties. With growing bipartisan support for such a bill, there is a good chance that Congress will pass such legislation during the next administration.
Finally, we are seeing renewed interest in the creation of a strategic Bitcoin reserve. Wyoming Republican Senator Cynthia Lummis sponsored the Bitcoin Act, which would create a strategic Bitcoin reserve for the United States, as well as a structured Bitcoin purchasing program. However, the concept has also attracted criticism in many quarters, including that bitcoin is too volatile for such a reserve, does not bear interest, and would distort the overall crypto landscape in favor of bitcoin. At this point, it is too early to assess whether the Lummis proposal will gain traction.
Decrease in SEC enforcement
President-elect Trump campaigned on a promise to revamp the SEC. Although a less assertive enforcement approach is expected, the parameters will depend on the leadership of the new president. Under the last Trump administration, for example, the SEC’s registration provisions were fiercely defended, even in cases involving simple allegations of “failure to register” and no allegations of fraud. (See “Significant Shift from ESG to Crypto Expected at SEC.”)
Increased banking activity
We expect federal banks and other financial regulators to revisit Biden-era policies and approaches to digital asset activities. Since 2021, banking agencies have essentially prevented banks from engaging in custodial and other activities by issuing interpretations that require them to obtain a supervisory no-objection. This has led to criticism that an “Operation Choke Point 2.0” exists for the crypto industry, with regulators pressuring banks to “suppress” controversial crypto-related activities.
The reversal of these interpretations, as well as the likely reversal of SEC Staff Accounting Bulletin No. 121 – which requires crypto assets to be reported as both an asset and a liability on a custodian’s balance sheet – would mark a significant regulatory change. It could also portend additional industry-friendly changes for the sector, which the president-elect has pledged to protect from regulatory “persecution.” (See “Trump 2.0 Could Mean a More Friendly Environment for Banks and Fintech.”)
Increased activity in capital markets
The potential for greater regulatory clarity, coupled with continued investor interest, broader institutional adoption and increased venture capital funding, is likely to result in a significant increase in related activity in the securities markets. capital, including IPOs. As the cryptocurrency economy continues to mature, we expect the convergence of regulatory developments and market enthusiasm to create robust opportunities for public listings, strategic transactions, and deeper institutional engagement . (See “Betting on the “Trump Trade” to Make Capital Markets Great Again.”)
Increase in private litigation
Cryptocurrency-related securities litigation has been a trending area for several years now, largely due to continued regulatory uncertainty and the SEC’s pro-enforcement stance.
If SEC enforcement is no longer a priority, we expect to see an increase in private securities litigation, led by plaintiff companies that have developed expertise in the area and are currently involved in actions to across the country in relation to a range of digital assets, projects and products. This increase is especially likely if it takes time for regulatory clarity to develop and digital asset prices to be volatile – two ingredients that have historically fueled private plaintiff activity.
(See source.)
