A Paradigm Shift in U.S. Crypto Regulation?

February 14, 2025

Time will tell, but it certainly feels like Trump Administration 2.0 is aiming to set some sort of record for things accomplished – for better and worse – in its first 100 days. Looking at what Trump, Elon, and crew are doing across the spectrum is both too much of a task for any single post and far outside the scope of this Substack. So, I will not be discussing anything other than Crypto law and regulation, not because I think that there is nothing else of importance happening in the U.S. or in the world, but because there are other folks far more qualified to speak on them than me, you friendly neighborhood crypto lawyer.

It seems clear at this point that the second Trump Administration will prove decisive in defining the United States’ long term approach to regulating digital assets. By rescinding prior policies, promoting stablecoin issuance, prohibiting central bank digital currencies (CBDCs), and mandating regulatory clarity (or at least promising to), the Administration has put forth an ambition to make the U.S. the “world capital of crypto.” Any skepticism aside, the Securities and Exchange Commission’s newly formed Crypto Task Force—led by Commissioner Hester Peirce—and the rescission of Staff Accounting Bulletin (SAB) 121 in favor of SAB 122, which alleviates onerous accounting burdens on custodians, both point towards meaningful change and a move away from the Biden Administration’s enforcement-centric stance.

My goal in this article is to list out some of these developments, related and emerging themes in U.S. crypto policy, and to explore the possible implications for stakeholders navigating this rapidly changing regulatory environment.

Executive Order: Strengthening American Leadership in Digital Financial Technology

Soon after taking office Trump issued the Executive Order on “Strengthening American Leadership in Digital Financial Technology” (the “Digital EO”), which explicitly reverses major policies of the Biden Administration. Under President Biden, the federal government’s engagement with digital assets was adversarial. Enforcement agencies, including the SEC, the Department of Justice, and banking regulators, brought a series of enforcement actions against crypto market participants. This tactic was commonly referred to as “regulation by enforcement,” as crypto projects were frequently left without clear registration pathways or clear definitions of permissible conduct.

President Biden’s Executive Order 14067, titled “Ensuring Responsible Development of Digital Assets,” laid out an overarching vision that placed emphasis on consumer protection, national security concerns, and systemic risk. However, it relied on multiple agencies to produce individual reports rather than establishing a cohesive strategy or providing immediate regulatory clarity. The result was an environment in which entrepreneurs and established financial institutions alike faced uncertainty about the regulatory classification of digital assets and the scope of permissible activities.

In practice, the Biden Administration’s approach made it more challenging for crypto businesses to secure banking services (a phenomenon sometimes termed “Operation Chokepoint 2.0). Federal banking regulators were seen as discouraging financial institutions from offering services to digital asset entities. Simultaneously, the SEC adopted novel and often litigated interpretations of existing securities laws, leaving many to question whether tokens or activities might be recharacterized as unregistered securities offerings.

The Digital EO performs several critical functions:

  1. Revocation of Biden-era Policies: It explicitly nullifies President Biden’s Executive Order 14067 on digital assets and directs agencies to rescind related policies and frameworks, including the Department of the Treasury’s prior “Framework for International Engagement on Digital Assets.”
  2. Promotion of Dollar-Backed Stablecoins: The EO articulates a vision that stablecoins can serve as a means of bolstering the U.S. dollar’s dominance in global finance, given that stablecoins must be fully collateralized by dollar-denominated assets.
  3. Prohibition of CBDCs: Departing from the Federal Reserve’s earlier exploration under President Biden, the Trump Administration’s policy bars the establishment and circulation of a U.S. CBDC.
  4. Regulatory Clarity: The EO calls for “technology-neutral” regulations that account for emerging innovations, while clarifying jurisdictional boundaries among federal agencies.
  5. Access to Banking: Explicitly reversing “Operation Chokepoint 2.0,” the EO insists on fair access to banking services for law-abiding individuals and crypto enterprises.
  6. Establishment of a Working Group: A new President’s Working Group on Digital Asset Markets is formed, chaired by the Special Advisor for AI and Crypto, to propose a unified regulatory framework.

Through these directives, the Administration seeks to end what it calls the “war on crypto” and foster a more business-friendly environment. The prohibition on CBDCs reflects a strategic bet on decentralized stablecoin issuance rather than a state-managed digital currency.

Promotion of Legislation

In parallel with the White House’s actions, Congress has moved to prioritize digital asset legislation. The House Financial Services Committee, under Chairman French Hill (R-AR), has established a Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence, chaired by Rep. Bryan Steil (R-WI). The Senate Banking, Housing, and Urban Affairs Committee has created a similar subcommittee, led by Senator Cynthia Lummis (R-WY), with the support of Chairman Tim Scott (R-SC).

Additionally, the House Agriculture Committee—relevant due to the Commodity Futures Trading Commission’s (CFTC) jurisdiction—has announced its own subcommittee to consider crypto matters. The 119th Congress thus appears poised to deliver meaningful legislation, potentially clarifying the interplay between securities and commodities laws, the scope of bank regulatory authority, and other issues such as taxation and broker reporting obligations. The Congressional Review Act (CRA) also figures prominently, as lawmakers consider overturning or modifying rules promulgated during the Biden Administration, including IRS reporting requirements for digital asset transactions.

The SEC’s New Crypto Task Force

Acting SEC Chairman Mark T. Uyeda, appointed by President Trump, quickly reshaped the Commission’s posture toward digital asset regulation. On January 21, 2025, Uyeda announced the formation of a Crypto Task Force, led by Commissioner Hester Peirce, with the stated objective of providing “clear regulatory lines, realistic paths to registration, sensible disclosure frameworks, and judicious enforcement.”

One of the most striking developments in the Trump Administration’s crypto policy is the pivot from “enforcement first” to “clarity first.” Under the Biden Administration, the SEC launched numerous enforcement actions against crypto companies—often applying expansive interpretations of the Howey test, which sets out the standard for determining whether a financial arrangement constitutes an investment contract under the federal securities laws.[1] Yet the proliferation of enforcement actions without a parallel effort to define workable registration pathways led to market uncertainty and a diminished appetite for innovation within the United States.
Commissioner Hester Peirce, often dubbed “Crypto Mom” in industry circles, has long advocated for a more nuanced approach, proposing a “safe harbor” for token issuers that would allow a grace period to achieve sufficient decentralization before facing full securities-registration requirements.[2] Her leadership of the newly established Crypto Task Force signals that the SEC may finally consider more flexible frameworks that promote compliance and offer regulatory predictability.

The shift from an enforcement-centered approach to a more prescriptive framework does not mean that investor protection concerns have been abandoned. Rather, the new administration appears to believe that clarity can facilitate both protection and innovation by defining acceptable conduct ex ante, rather than punishing conduct ex post.[3]

The Death of SAB 121

Two days after appointing the Acting Chairman, the SEC published Staff Accounting Bulletin (SAB) 122, rescinding the controversial SAB 121. Under SAB 121, entities that safeguarded customers’ crypto assets were required to report those assets as both an asset and a corresponding liability on their balance sheets, measured at fair value.[4] Critics argued that this approach inflated balance sheets and deterred financial institutions from offering custody services. In contrast, SAB 122 directs entities to apply more traditional accounting standards for contingent losses and liabilities under Financial Accounting Standards Board (FASB) and International Financial Reporting Standards (IFRS).

With SAB 122 now in effect, custodians and exchanges will assess their liability for risk of loss under traditional contingent liability standards. If a firm adequately insulates itself from hacking and other risks—such that the likelihood of asset loss is remote—those liabilities may not rise to the level of recognition on the balance sheet. As a result, more banks and exchanges may become interested in offering digital asset custody services, expanding market participation. We will see.

Anticipated Judicial Interpretations and Litigation

Although the Trump Administration’s policies may reduce enforcement actions, questions remain about how courts will handle ongoing litigation that originated under the prior administration. If, for instance, the SEC’s prior allegations and interpretations of securities laws are inconsistent with the new policy approach, courts may face motions to dismiss or motions for summary judgment based on the agency’s updated stance.

Under administrative law doctrines such as Chevron deference, courts often defer to agency interpretations of statutes, particularly if the agency’s interpretation is consistent with congressional intent.[5] However, when an agency drastically shifts policy, it must provide a “reasoned explanation” for the change, consistent with the Supreme Court’s holding in FCC v. Fox Television Stations, Inc.[6] The newly formed Crypto Task Force, in concert with the SEC’s leadership, will need to articulate clearly its rationale for departing from prior interpretations.

Different federal courts have diverged in their interpretations of crypto assets as securities, commodities, or novel financial products. Although the new regulatory framework might obviate some of these debates, short-term litigation will likely continue until statutes or regulations supply definitive classifications. If such litigation results in inconsistent rulings, the Supreme Court may ultimately grant certiorari to resolve fundamental questions about the characterization of digital assets under federal law.

Conclusion

Barely days into his new term, President Trump has executed a sweeping recalibration of U.S. digital asset policy. By revoking former President Biden’s executive orders, the Trump Administration has effectively declared an end to “regulation by enforcement.”

In the near term, these actions may spur rapid industry growth, spurred by more favorable accounting treatment and renewed investor interest in U.S.-based crypto ventures. However, looking forward, if policy fragmentation or partisan disagreements emerge, the industry could face new waves of uncertainty.

For now, though, there is hope that – in this corner of the world at least – measured oversight, continued public engagement, and transparent rulemaking will come to define U.S. crypto regulation, ushering in a new era of domestic innovation and opportunity.

Written by David Lopez Kurtz

References

[1] See SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

[2] Hester Peirce, Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization, U.S. Securities and Exchange Commission (Feb. 6, 2020).

[3] For a global overview of CBDC initiatives, see Bank for International Settlements, CBDCs: an opportunity for the monetary system, BIS Quarterly Review (March 2021).

[4] “Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales,” 87 Fed. Reg. 57254 (Sept. 19, 2022).

[5] Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

[6] 556 U.S. 502 (2009).

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