From outsider to insider: crypto’s Washington makeover

The regulatory framework will determine the success or failure of an often-controversial digital asset class with the potential to transform portfolio management.

Speaking as the then-Republican presidential nominee at the Bitcoin Conference in Nashville, Tennessee in July 2024, Donald Trump pledged to make America “the crypto capital of the planet and bitcoin superpower of the world”.  Following his election victory, bitcoin reached record highs above $100,000. In his first major international address as president at the World Economic Forum in Davos, Mr Trump reiterated his vision to make the US the “world capital of artificial intelligence and crypto”.

These campaign promises and initial signals have galvanised the cryptocurrency sector into heightened engagement with the new administration. With Republicans in control of the new Congress and key regulatory agencies, the industry appears to be aiming to shape foundational policies at this early stage.

Substantial inauguration donations from industry stalwarts and early policy moves signal that cryptocurrency and blockchain technology may take on greater economic and strategic significance in coming years. Industry leaders have committed substantial resources to shape a regulatory framework for digital asset trading, custody and new financial products. Leading venture capitalists have framed the crypto industry as critical to US technological leadership, while major financial institutions and tech leaders have emphasised its potential to modernise financial market infrastructure and reduce friction in capital markets.

Under orders

The administration appears ready to act on these possibilities. Among their first actions was an executive order directing federal agencies to establish clear jurisdictional boundaries for crypto oversight, while prohibiting development of a central bank digital currency. The order also requires evaluation of creating a national digital asset stockpile. President Trump has also nominated Paul Atkins, a former Securities and Exchange Commission (SEC) commissioner and board member of the Digital Chamber of Commerce, to succeed former chair Gary Gensler.  In the interim, President Trump has designated commissioner Mark Uyeda as acting chair of the SEC, who promptly launched a crypto task force led by commissioner Hester Peirce to develop a comprehensive regulatory framework.

This marks a departure from the SEC’s aggressive enforcement posture under Mr Gensler’s tenure, during which the SEC brought at least 83 crypto-related enforcement actions and argued that most crypto assets are securities — a stance that the crypto industry has argued is difficult to comply with, given the unique technological and operational characteristics of digital assets. With Mr Atkins’ nomination pending and the new task force in motion, the SEC appears poised to provide the clarity and guidance the industry has long sought. The new SEC leadership is reportedly exploring the possibility of reviewing pending enforcement cases and potentially freezing litigation that does not involve allegations of fraud, with some cases potentially being withdrawn or settled.

Innovation drive

At the Commodity Futures Trading Commission (CFTC), President Trump has named commissioner Caroline Pham as acting chair, while his nomination for permanent chair remains pending. Like her SEC counterpart, Ms Pham is expected to help shape a regulatory environment supporting innovation in digital assets and digital asset derivatives, while maintaining market integrity. As commissioner, she has previously advocated for “regulatory sandboxes” where firms can test new products under CFTC supervision.

A central challenge facing the industry is the classification of digital assets. Whether transactions in a digital asset are deemed securities transactions or commodities transactions determines which agency exercises jurisdiction, and what types of products and market infrastructure can be built around those transactions.

Previous bipartisan legislation aimed at clarifying crypto oversight and providing a comprehensive framework for digital assets has stalled in Congress, including bills that would have expressly clarified when digital assets fall under SEC versus CFTC jurisdiction. With strong Republican support and growing bipartisan interest, comprehensive crypto legislation appears more likely than at any point in recent years.

Crypto winter memories

While the crypto winter of 2022-2023 exposed significant fraudulent activities, it is crucial to distinguish between criminal conduct and legitimate innovation. Fraud is fraud, whether perpetrated with digital assets or traditional financial instruments.  Yet the regulatory approach that followed relied heavily on enforcement actions rather than clear guidance, creating uncertainty that led many innovative projects to seek opportunities abroad. The path forward requires targeting bad actors while creating an environment where legitimate enterprises can innovate and grow.  This means developing practical safeguards that protect investors without stifling the technological advancement that makes digital assets transformative.

A collaborative approach to regulation is possible, and the new administration’s early moves signal a shift in this direction. At its foundation, effective oversight requires regulators to develop genuine technical understanding of blockchain systems and digital assets, including their capabilities and limitations, not just their risks.  This technical grounding opens the door to thoughtful guidance developed through public input that could provide innovators with clearer parameters for compliance.

Such a collaborative framework might then evolve toward technology-neutral principles focused on innovation, market integrity and investor protection, rather than rigid technical specifications and punitive measures. As the new administration reshapes crypto policy, the role of digital assets in US markets may be taking centre stage.

Dan Davis (left), partner and co-chair, financial markets and regulation in Washington, Alexander Kim (right), associate, financial markets and funds in New York, at Katten Muchin Rosenman LLP