Why Trump's New Crypto Era May be Less Wild, and More Profitable, Than Investors Think — Barrons.com

By Howard Fischer and Liberty McAteerAbout the authors: Howard Fischer and Liberty McAteer are both partners at the New York law firm of Moses Singer. Fischer was previously a senior trial counsel at the SEC. McAteer is a partner in the firm's technology practice.Much ink has been spilled on predictions that the incoming Trump administration's Securities and Exchange Commission will take the reins off cryptoworld. We hear, often from the left, that the new environment for cryptocurrencies will be a disaster for consumers, who will fall victim to an unprecedented array of scams in a newly untethered industry. Or, often from the right, the narrative is that loosening the bonds of excessive regulation will usher in a new golden age of unrestrained prosperity and technological innovation for the industry.The reality is likely to be somewhere in the middle, as the crypto industry hasn't been subject to any unified set of purpose-tailored rules. The SEC, to date, has declined to issue rules specific to crypto. Instead, it has arguably created a body of implied regulation through enforcement actions regarding an industry that the outgoing chairman, Gary Gensler, called a "speculative volatile asset that's also used for illicit activity."U.S. law-enforcement agencies typically enforce laws created through acts of Congress (or through regulatory agencies, after an appropriate notice and comment period). Congress and federal agencies have abdicated this responsibility with regard to cryptocurrency, instead leaving law enforcement to create the dominant regulatory regime, primarily through the enforcement actions of the SEC.The SEC hasn't engaged in the traditional rule-making process involving publication of proposed rules with an opportunity for public comment and staff engagement. Some commissioners, notably Hester Peirce, have urged the commission to create a comprehensive cryptocurrency framework. Rather than do so, the SEC has instituted dozens of enforcement actions against cryptocurrency firms, including causes of action ranging from failing to register cryptocurrencies as securities to failing to register as a broker dealer or securities exchange.If the SEC's goal has been to put a damper on crypto activity, arguably the consistent and growing high level of enforcement actions indicates that this strategy is wanting. Instead, the SEC's actions have fostered an unpredictable environment where the most significant legal developments aren't the result of traditional rule-making but are products of the decisions of the SEC's Enforcement Division, including variable private settlements and sometimes-inconsistent court decisions. Case in point: Judges Analisa Torres and Jed Rakoff in the New York federal courts recently issued decisions within weeks of each other taking diametrically opposed views of whether public distributions of digital assets are securities transactions.The regulatory environment remains target-rich despite the SEC's aggressive and robust enforcement history. This implies a few possibilities. Industry may have yet to glean clear rules from previous enforcement efforts. It may have decided that the regulatory regime enforced by the SEC is incorrect. Or the crypto industry may have judged that the risks are worth it or that it can outrun enforcement efforts. Most likely, it is some combination of all the above.The Trump administration has an opportunity to bring clarity to this area of regulatory confusion created by a rule-making-through-enforcement approach. Trump's proposed choice to lead the SEC, former Commissioner Paul Atkins, has either advised or co-chaired several pro-crypto organizations, and has reportedly expressed support for Peirce's proposed crypto regulatory frameworks.We can't predict which parts of the overtly crypto-friendly Republican platform will be enacted by the incoming administration and Congress. However, there is an opportunity for them to take the reins and build out a regulatory framework in a more traditional fashion. Even if such a framework expressly favors one side over the other, it stands a high likelihood of being a more predictable regulatory regime than the one established to date. Whether the new regulatory regime is implemented through passage of the Financial Innovation and Technology for the 21st Century Act or some similar structure has yet to be determined. Regardless, it is difficult to argue that the current regime of regulation-by-enforcement has satisfied any public constituency, whether pro-crypto, crypto-skeptic, retail investor, or consumer advocate. In the end, a direct answer to questions such as "are cryptocurrencies securities?" and how crypto is to be treated under relevant accounting or taxation rules may bring clarity to a fractured regulatory regime. That's true even if the answers are disappointing to one end or the other of the political spectrum.Even if the new rules wind up "unleashing" crypto firms and imposing limits on the ability of regulators such as the SEC and the Commodity Futures Trading Commission to create rules, this alone could bring substantial clarity to numerous questions about cryptocurrency that have stymied investors, consumers, and operators. To wit, despite the damage of the so-called crypto winter of 2022, the failure of multiple stablecoins, the collapse of FTX, and high-profile criminal prosecutions, once the SEC approved Bitcoin exchange traded funds, the asset value of BTC skyrocketed. It is unarguable that, no matter any individual's feelings on cryptocurrency, billions or potentially trillions of dollars of value are embodied in the blockchain.No matter what one's political position, or position on crypto, is, it's hard to argue that billions of dollars of assets don't deserve a more traditionally created governance structure than the one that has been built to date.Guest commentaries like this one are written by authors outside the Barron's newsroom. They reflect the perspective and opinions of the authors. Submit feedback and commentary pitches to [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.