Donald Trump’s victory in the 2024 US presidential election has sent ripples through the crypto industry, signaling what could be a seismic shift in the US regulatory landscape.
To understand the implications of this political change, we sat down with Lewis R. Cohen, a leading authority in cryptocurrency law and partner at Cahill Gordon & Reindel LLP. With extensive experience navigating the intersection of blockchain technology and regulatory frameworks, Cohen provides unique insights into what could be the most significant regulatory pivot for the crypto industry since its inception.
What immediate changes can we expect in crypto regulation under Trump’s second term, particularly regarding key regulatory agencies like the SEC and CFTC?
The most immediate impact will come through leadership transitions at key regulatory agencies. While at the SEC, there are some constraints — Gary Gensler’s term runs until 2026 and we can’t just remove sitting Commissioners — we might see Commissioner Hester Peirce stepping in as Acting Chair.
But the real swift changes could happen at other agencies. The CFPB Director can be removed without cause, and at the OCC, Acting Comptroller Hsu can be replaced immediately. These changes would automatically shift the FDIC board to Republican control. At the CFTC, we could see either Commissioner Pham or Mersinger taking the helm.
There’s talk about a shift from ‘regulation by enforcement’ to a different approach. Could you elaborate on how this new regulatory philosophy might look?
Based on what we saw during Trump’s first term, we’re looking at a fundamental shift in regulatory philosophy. Instead of the current ‘gotcha’ approach focusing on technical violations like registration failures, we expect to see enforcement priorities realign with addressing real market risks — think fraud, market manipulation, and serious misconduct that harm investors.
The key difference will be in how cases are handled. You’ll likely see more balanced settlement terms, particularly in technical violation cases, and more practical remediation requirements. But let me be clear — this doesn’t mean no enforcement. Rather, it’s about having a more nuanced, market-friendly approach that focuses on correcting informational asymmetries while allowing innovation to flourish. It’s regulation with a scalpel rather than a sledgehammer.
How do you see the classification of major cryptocurrencies evolving, particularly regarding tokens like SOL, ADA, and AVAX in relation to ETH’s commodity status?
We’re seeing a significant shift in the crypto classification landscape. The SEC recognizes both BTC and ETH as commodities, and recent court rulings have further complicated attempts to classify all tokens under a blanket securities designation.
Those tokens like SOL, ADA, AVAX, and DOT share fundamental characteristics with ETH. Recent court decisions regarding BNB and XRP secondary market transactions are also pointing towards a more nuanced regulatory approach. What this means in practical terms is that trading and other third-party activities involving these assets would likely carry substantially reduced securities law risks. The market’s maturing, and our regulatory framework needs to reflect that reality.
Could you explain the expected timeline for these regulatory changes? When might the industry start seeing concrete impacts?
The timeline here is pretty clear-cut. While the transition period will be crucial with the current administration likely pushing through last-minute actions, we’re looking at the first two quarters of 2025 for significant changes.
The broader policy shifts will unfold over the following 6 to 12 months. Some changes, like at the CFPB and OCC, can happen quickly through leadership transitions, but others, especially at the SEC, will take more time due to staggered commissioner terms.
How might state-level regulation, particularly in traditionally strict jurisdictions like New York, respond to this potential federal deregulation?
Here’s an interesting dynamic to watch: as federal oversight becomes more accommodative, we might actually see more aggressive enforcement at the state level, particularly in jurisdictions like New York that have historically taken a harder line on crypto. The irony is that a more business-friendly approach at federal agencies like the SEC could actually reduce the urgency for comprehensive federal legislation.
When that happens, states that have been traditionally skeptical of crypto activity often step up their enforcement efforts to fill what they perceive as a regulatory gap. This could create a complex patchwork of compliance requirements for industry players.
What’s the outlook for crypto legislation in Congress, particularly regarding existing bills and bipartisan efforts?
The landscape in Congress is shifting significantly. While the House-passed FIT21 bill likely won’t move forward, I’m more interested in the thoughtful market structure legislation being developed in the Senate. Senator Lummis and others have spent years building a bipartisan coalition, and that groundwork will likely serve as the foundation for new legislation.
However, here’s the interesting twist: with a more accommodative regulatory approach at federal agencies, we might see less urgency for comprehensive legislation. Market participants might find administrative rulemaking sufficient for their immediate needs.
Regarding the crypto advocacy that Trump has driven, does it have something to do with the US-China rivalry?
It’s difficult to fully understand what’s happening behind the scenes, especially with Trump. In my view, it’s relevant, but it’s hard to pinpoint exactly how. A major issue is the distribution of the US national debt, particularly with China being one of the largest holders next to Japan.
Tokenization could potentially play a significant role here. By tokenizing dollar-denominated debt, especially government debt, the US could diversify away from relying so heavily on China as a key holder. This could strengthen the US’s financial position and reduce its dependence on China, which, in turn, might influence the broader geopolitical landscape.
I’d like to believe that thoughtful individuals in the US government recognize the importance of this, but it’s genuinely hard to say if that’s the case. The relationship is incredibly complex, and while it makes sense to see these moves as strategic, it’s not entirely clear if that’s the driving force behind the shift.
Trump has mentioned establishing a federal Bitcoin reserve. How realistic is this proposal?
Honestly, I’m pretty skeptical about whether there would be broad support for the idea of using crypto as a strategic reserve asset, and I’m not even convinced it’s a good idea. If I were a Bitcoin supporter, the last thing I’d want is for the government to control a large amount of Bitcoin. Sure, Trump might be a supporter right now, but what happens if the next administration isn’t? They could easily decide to dump a massive amount of Bitcoin on the market, which could crash the price and cause chaos.
While some people might see it as the government endorsing Bitcoin’s importance, I think that misses the point. The real value of Bitcoin isn’t about hitting a specific price target so that people can sell it off for quick profits; it’s about creating an alternative financial system.
The idea of locking up a bunch of Bitcoin in the hands of the US government just doesn’t align with that vision. There’s too much volatility and too many political risks involved, so I just don’t see it as a smart move.
What should the crypto industry expect during the pre-inauguration transition period?
The transition period is going to be particularly delicate. We’re likely to see the current administration working to finalize pending rules and potentially accelerating new enforcement actions while they still have the authority. It’s a typical ‘last push’ scenario we often see during transitions.
Industry players need to stay especially vigilant during this period, as it could create a complex regulatory environment where we’re dealing with both the outgoing administration’s final moves and preparing for the incoming team’s different approach. This period will essentially set the stage for the broader changes we expect to see in 2025.
Who or what do you think could be a key figure or key indicator to watch for changes in Web 3 policies of the new administration?
I think the most important figure to watch would be the person appointed as Treasury Secretary. This role sets the tone for most of the administration’s domestic and foreign policy. Typically, a position of that level is appointed early on, sometimes even before the Secretary of State. Honestly, regarding crypto, the Secretary of State might not be as relevant, but the Treasury Secretary certainly would be.
Ideally, it would be someone at least familiar with crypto or, at the very least, not outright hostile towards it. They don’t need to be a huge supporter, but it would be helpful if they weren’t known for being anti-crypto. That would be something to watch closely.
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