US Political Shift Primes Digital Asset Industry for Major Boost

The 119th Congress could be the most favorable toward blockchain technology in US history, given the many incoming House and Senate members who have voiced support for the digital asset industry.

In the first 100 days of the next administration, the president and Congress should take critical first steps to establish a robust regulatory and legislative framework that can position the US as a global leader in digital assets. They should start doing this by ending lawfare, clarifying regulations around stablecoins, and ensuring equal access to the traditional financial system to digital asset companies.

Ending Lawfare

The top priority is to end the era of lawfare—the practice of using legal systems and institutions to harass, intimidate, and delegitimize disfavored industries. Finding ways to mitigate illicit finance risk and promote consumer protection in the digital asset industry is essential. But attempting to eradicate that industry through enforcement and adoption of regulations that make it impossible to conduct business is lawfare.

The new president should issue an executive order directing all relevant regulatory agencies to immediately rescind or withdraw harmful guidance and proposed rulemakings. The order also should pause active enforcement actions pending a comprehensive review that considers the US Supreme Court’s decision in Loper Bright v. Raimondo and preliminary findings in SEC v. Ripple Labs Inc., SEC v. Coinbase Inc., and SEC v. Binance Holdings Ltd.

Such an executive order would prevent the agencies from causing further harm while enabling Congress to reassert its proper constitutional role as a policymaker.

Clarifying Stablecoin Regulation

Stablecoins, or digital assets collateralized 1:1 by fiat currency or other highly liquid assets, are quickly becoming a stand-out utility case. There are at least two reasons for this. First, stablecoins are a fast, efficient medium for cross-border exchange and other payments. Second, these instruments have implications for national security and monetary policy because they are fiat-backed.

The incoming administration must act quickly to solidify the US’ position as the world’s global reserve currency by providing much-needed clarity for domestic financial institutions to engage in stablecoin use cases.

The president should direct the relevant agencies and the Treasury to provide clear guidance to US banks on how they can issue and interact with these assets. This includes repealing Staff Accounting Bulletin 121, a Securities and Exchange Commission rule that has hindered our safest and most secure financial institutions from offering digital asset custody services.

Congress also should prioritize adopting a legislative framework for the financial institution issuance of such assets, which would provide a private-market solution for dollar dominance that can endure well into the 21st century and beyond.

Ensure Equal Access

The federal banking agencies play a vital role in ensuring the safety and soundness of US banks. But through public interpretive letters and subsequent supervisory guidance, these agencies have used safety-and-soundness objectives to justify denying digital asset companies—and associated individuals in some cases—access to basic banking and payments services.

The incoming president and Congress must reestablish the foundational principle that all lawfully operating businesses should have access to banking services. Upholding this principle doesn’t mean abandoning fidelity to safety and soundness in banking. At a minimum, though, agencies should be directed to rescind discriminatory practices and re-issue or reinterpret supervisory guidance and processes to give digital asset companies a clear onramp to the US banking system.

To the extent such a mandate isn’t included in stablecoin legislation adopted by Congress, it should be reiterated that it is within core banking powers to provide custody and transactional services for digital assets to the same degree as other bank-permissible asset classes, with capital rules and other obstacles revised accordingly.

Outlook

Although the political landscape has dramatically shifted in favor of innovation, the road to a thriving digital asset ecosystem in the US requires action, and the government’s work shouldn’t end with the above recommendations. Clarifying the distinction between digital asset securities and commodities and carving out a clear role for smart contracts will remain important tasks.

The new administration and Congress have a unique opportunity to shape the future of this industry through well-considered legal and policy measures. If they are successful, the US will be poised to lead the world through the next great financial and technological evolution.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jason Allegrante is chief legal and compliance officer at Fireblocks, where he advises on a broad range of digital asset issues.

Write for Us: Author Guidelines