Coin Center: Are we too optimistic about Trump's potential crypto policy?

Original Title: Coin Center's Analysis of the Crypto Policy Landscape Following the Elections

Author: Peter Van Valkenburgh

Compiled by: Mensh, ChainCatcher

Cryptocurrency has garnered a lot of attention in the recent elections, with many wondering how friendly the new government and Congress will be. In short, we expect improvements in certain areas while others will still face challenges. We anticipate that achieving good policy in securities and banking regulation may be easier, while there may also be clearer rules governing centralized secondary markets and centralized stablecoin issuers.

The outlook in the areas of anti-money laundering, tax reporting, and sanctions is less certain. Coin Center will continue to focus on protecting the rights of developers of self-custody and privacy software, as well as the rights of ordinary Americans who wish to use these tools. Below are our thoughts on these issues and our preliminary analysis of future opportunities and challenges.

How to Think About Crypto Issues During a Government Transition

Cryptocurrency policy issues can broadly be divided into two categories: monitoring issues (tax reporting, BSA bank secrecy laws, AML anti-money laundering laws, sanctions) and investor protection issues (SEC, CFTC, banking). Achieving good policy in one category does not guarantee similar positive outcomes in the other. The rationale behind each policy area differs (protecting investors versus identifying and stopping illegal flows of funds), and the political motivations and coalition-building opportunities for legislators vary when focusing on a particular area.

Similarly, the cryptocurrency ecosystem can be divided into two categories: centralized enterprises (custodial wallet providers, centralized exchanges, trusted issuers) and decentralized infrastructure developers and users (protocol developers, non-custodial wallets and application developers, and non-intermediated users of these protocols and applications).

Coin Center hopes to achieve good policy across all areas, but our core mission is to defend the rights of developers and users of decentralized and peer-to-peer tools. Overregulation in investor protection or monitoring could threaten developers and users. However, the threats from the monitoring space have become more pronounced recently.

Here is a chart about past and potential future policy actions to help you understand this framework:

You may notice that the box in the lower right corner appears overly crowded. This may be a reflection of our bias. Coin Center's mission focuses on the rights of decentralized infrastructure developers to publish code (First Amendment issues) and the obligation to prevent improper monitoring (Fourth Amendment issues), and the fourth quadrant is the battleground where these two themes intersect. While we may have biases, this area of concern has indeed seemed more aggressive than others over the past four years. There are many explanations for this, including arguments about political halos and news cycles, politicians mistakenly or opportunistically linking global and foreign policy tragedies to cryptocurrency (such as Hamas funding, Russian oligarchs attempting to evade sanctions), and the formation of political coalitions where the left and right, though rarely in agreement, sometimes find common ground on perceived issues of national security and monitoring.

What Are the Biggest Threats?

In recent years, serious threats have emerged to the freedoms of individual cryptocurrency users and developers. In its rule redefinitions and enforcement actions against wallet providers like Metamask and Coinbase Wallet, we see the SEC overly aggressively regulating individual developers and users directly. Monitoring issues are also beginning to surface:

6050I ( Note: The 6050I bill requires all digital asset transactions over $10,000 to be reported to tax authorities, effective January 1, 2024 )

Tornado Cash sanctions ( Note: On August 8, 2022, the U.S. Treasury's OFAC (Office of Foreign Assets Control) added Tornado Cash to its sanctions list, accusing the open application of facilitating billions of dollars in money laundering activities )

Broker disclosure rules ( Note: In August 2023, the Treasury proposed a regulation aimed at defining when a cryptocurrency-related person is considered a "broker," requiring them to collect personal information from their cryptocurrency tool users and report it to the IRS for tax purposes )

And lawsuits against non-custodial developers for unlicensed money transmission ( Note: On April 24, 2024, the indictment against Samourai Wallet was unsealed. On the same day, in the Tornado Cash case, the Justice Department opposed Roman Storm's motion to dismiss and exclude evidence. Prosecutors expanded the definition of fund transfers, potentially affecting the legal status of cryptocurrency wallet providers. ). Meanwhile, in Congress, we oppose legislation that imposes unreasonable monitoring obligations on non-custodial developers in bills like CANSEE (Crypto Asset National Security Enhancement Act) and DAMLA (Digital Asset Market Structure and Regulatory Accountability Act).

This Is a Long-Term Battle

Three main threats come to mind: (1) 6050I, (2) Tornado Cash sanctions, (3) unlicensed money transmission lawsuits. First, we already have ongoing litigation in the context of 6050I; we argue that the warrantless reporting of personal information, including that of individuals receiving over $10,000 in cryptocurrency, to the IRS is unconstitutional. Second, regarding the Tornado Cash sanctions, we argue that sanction laws do not grant the Treasury the power to prohibit Americans from using tools like smart contracts, as these tools are neither foreign nor their property. Third, we are alarmed to see the Southern District of New York bringing unlicensed money transmission lawsuits against developers of non-custodial software tools (Tornado Cash and Samurai Wallet), and we will continue to do our best to assist the defendants in these cases. While the Justice Department may change under the Trump administration, it maintains its political independence, making it unlikely to abandon these prosecutions due to a government transition.

Can We Still Be Optimistic?

In short, the new government will be favorable to domestic centralized enterprises, especially regarding investor protection issues. This is crucial because intermediary services and effective capital formation are essential for enhancing the appeal of cryptocurrency among audiences where the technology is less mature. However, what about the key areas that Coin Center focuses on, which affect the developers and users of truly decentralized tools and services?

At the institutional level, there is reason to believe that ongoing controversial rule-making may be frozen or even abandoned due to President Trump's overall support for cryptocurrency and his potential appointments in the SEC and Treasury. This would be a positive outcome, as the SEC's rule redefinitions and the IRS's broker rules for non-custodial developers hang like a sword over our heads.

It is less certain whether the new government will be interested in scaling back excessive sanctions and anti-money laundering policies, which are at the core of the fourth quadrant. However, we still hope that even under a friendlier SEC, harsh monitoring and control policies will continue to drive innovators away from the U.S., stifling development and depriving ordinary Americans of the benefits of these technologies (without effectively preventing criminals and terrorists from using them).

We are also cautiously optimistic that Congress may play a larger role in opposing monitoring issues. Members have sent letters criticizing the implementation of 6050I, the sanctions against Tornado Cash, and the lawsuits for unlicensed money transmission. Legislation like the Blockchain Regulatory Clarity Act will provide a legislative solution to the lawsuits for unlicensed money transmission, and we are prepared to find a bipartisan path forward to push it through.

We look forward to collaborating with the new government on this topic, and if we can compellingly present our arguments, they will be given a fair hearing. Throughout history, the constitutional rights of Americans, particularly our respect for free speech and vigilance against warrantless searches and seizures, should ensure that this is the best place to build and use cryptocurrency and open blockchain networks. "Supporting crypto" means not only choosing friendlier institutional leaders or implementing business-friendly regulations but also embodying a profound American spirit: standing up for privacy and speech in the most challenging times, especially when national security interests rise and the shadows of crime and terrorism briefly obscure our freedoms, privacy, and openness.