The Challenge of Digital Asset Regulation of NFTs

By: Mauro Wolfe and Vincent J. Nolan III

Following the January 23, 2025 White House Executive Order on crypto (see our post on that executive order here), and its aggressive timeline for developing a crypto-friendly regulatory environment, it appears that all levers of government have been switched “on” when it comes to the world of digital assets. From the Executive Office working group that includes the top agencies and government departments, to the halls of Congress, discussion of all things crypto – and especially the development of legislation (i.e., revamping FIT21), is at the forefront in Washington. In this article, we take a look at one aspect of the discussion:  NFTs as digital assets and current proposed legislation to regulate.

NFTs are unique digital assets that represent the ownership of a digital item or real-world asset that are recorded on a blockchain. “Non-fungible” means that, unlike, say Bitcoin, where one Bitcoin is exactly the same as another Bitcoin in the same way one dollar bill is identical to another one-dollar bill, an NFT is a unique, one-of-a-kind digital asset showing ownership of a specific and unique asset, like a piece of art. 

So, what is so special about NFTs and why are we interested? The future of NFTs could be big. There are numerous and interesting use cases for NFTs beyond digital images of apes (digital collectibles). The use cases include: digital identification, real estate, art and music, healthcare and medical research, metaverse transactions, car ownership, insurance, consumer rewards, banking and credit. The options are limitless. By some estimates, the global NFT market could reach $14 billion USD by 2027, or $265 billion by 2032, at a growth rate of 30% or more. So, getting legislation and regulation on NFTs wrong could be a deal breaker. NFTs use of blockchain makes proof of ownership fast, efficient, tamperproof, and verifiable. 

What is the current state of legislative proposals on NFTs?  For today’s article, we want to focus on the resurrection of the New Frontiers in Technology Act (the NFT Act), originally released in September 2024 in the 118th Congress by Congressman Scott Timmons (R-SC) and co-sponsored by Congressman Ritchie Torres (D-NY). That bill has resurfaced and is aimed to be added in the crypto legislation passed by the House last year, known as FIT21, which is now in the process of being revised in preparation for another attempt at passage. 

How does the NFT Act propose to deal with NFTs? The answer is: it is limited and “it’s complicated.” The NFT Act expressly removes “Covered Non-Fungible Tokens” from the definition of a security or an investment contract under US securities law and the now well-known Howey test. What kind of digital assets fall within this category? The NFT Act includes NFTs which are, “developed primarily for personal, family, or household consumption,” and includes things like:  art, music, literary works, intellectual property, collectibles, merchandise, virtual land, or video game asset, among other categories. 

However, within that definition, there are specific exclusions that relate to how the NFT is marketed or used. Specifically, if the NFT is a work of art, but the NFT is “marketed by an issuer or promoter… primarily as an investment opportunity,” or promises activity designed to increase the value of the NFT, then the NFT is no longer a Covered Non-Fungible Token and may be a security. Further, other exclusions apply.  For instance, NFTs that represent digital ownership of securities or commodities will not be included in the definition of a Covered Non-Fungible Token. In effect, it appears that there are two categories for NFTs.  They are either a security or a commodity. Finally, the NFT Act requires the Comptroller General of the U.S. to study NFTs and report to Congress within one year, addressing questions about the NFT market.

The NFT Act still needs some work. As drafted, it appears that the NFT Act does not directly address the role of NFT marketplace exchanges. Additionally, the NFT Act is very narrow and provides limited protection for market participants. For example, if a fine artist paints a picture, and creates an NFT through an art dealer who specializes in NFT art for collectors and an LLC subsequently acquires the NFT, is that a security or a commodity, or both? The answer is unclear and “it’s complicated.” Hopefully, we receive more clarity from Congress and the relevant regulators as to how NFTs will be treated and how this will all work.  

Duane Morris continues to monitor developments in digital assets and the blockchain sector so we can adequately advise our clients. We look forward to seeing the next proposed piece of legislation that impact NFTs. 

Coinbase Enters Crypto Lending Market for Second Time with Morpho Labs Collaboration

By Rubina Karapetyan, Joseph Silvia and Mauro Wolfe

Earlier this month, Coinbase, the largest cryptocurrency platform in the U.S., partnered with Morpho Labs, the biggest onchain lending platform on Coinbase’s Base network, to introduce a bitcoin-backed loan service. This new service, which operates on Base, Coinbase’s Ethereum layer-2 network, lets users borrow up to $100,000 in USD Coin (USDC) by using their Bitcoin as collateral and is available to all U.S. residents, except those in New York.

Borrowing USDC against Bitcoin has been possible on platforms like Morpho and other DeFi services for some time. However, with this new collaboration, Coinbase has integrated Morpho’s lending services directly into its own interface, which it believes will attract borrowers with easier access and a more user-friendly experience. The service aims to close the gap between holding crypto assets for the future and putting them to use today. Although it currently will only support Bitcoin, Coinbase plans to eventually extend the service to other crypto tokens.

Coinbase merely facilitates the exchange; it does not directly issue loans. Borrowers can always choose when they want to pay off their loans because there are no set repayment schedules. Interest rates are adjusted by Morpho based on real-time market conditions. Unlike traditional loans that depend on credit scores, crypto loans instead require substantial collateral. Morpho’s platform ensures a minimum collateral ratio of 133%. If the loan balance, including accrued interest, reaches 86% of the collateral’s value, liquidation is automatically triggered, as well as repayment and penalty fees. Borrowers are allowed to adjust their loan-to-value ratio whenever they want as long as the ratio stays above the required threshold. Through the Coinbase app, Coinbase will share liquidation trigger warnings if the loan balance is reaching the threshold, giving borrowers a chance to cure.

According to the Coinbase website, to access the service, borrowers can go to the Cash tab within their Coinbase app, click on “Borrow,” and enter the amount of USDC they want to borrow against their Bitcoin. After confirming the amount, the bitcoin that is pledged as collateral is converted to Coinbase Wrapped BTC (cbBTC) token, a bitcoin-backed token issued by Coinbase, and then transferred onchain to a Morpho smart contract. Morpho will then disburse the USDC loan, which borrowers will be able to see instantly in their Coinbase account.

This launch marks Coinbase’s second entry into the Bitcoin lending market. In November of 2023, the platform officially ended its “Borrow” program, which allowed borrowers to get cash loans backed by their bitcoin.

The new service has advantages as well as risks. Selling bitcoin can result in capital tax gains or losses. For this reason, as well as others, many crypto traders are hesitant to sell their holdings. Now, they can instead borrow against their Bitcoin and use their digital assets, likely avoiding a sale and tax consequences. However, the tax implications remain unclear, mainly because the conversion from bitcoin to cbBTC might be deemed a taxable event in the future. In addition, the volatility of bitcoin prices could affect the value of the pledged collateral, possibly leading to liquidation if the required thresholds are not satisfied. Finally, while using a DeFi platform like Morpho may offer greater transparency, smart contracts historically carry risks, such as bugs and hacks. We will continue to watch these and related developments as the industry continues to mature and work through challenges.

By Executive Order, the Trump Administration Takes a Stance in Support of Crypto

By Mauro M. Wolfe and Vincent J. Nolan III

On January 23, 2025, President Donald Trump took the first major step to fulfill his campaign promise to make the United States the “crypto capital of the planet,” issuing an executive order entitled, “Strengthening American Leadership in Digital Financial Technology.” The order outlines a strategic framework for promoting U.S. leadership in digital assets and financial technology.

Read the full story on the Duane Morris LLP website.

The CFPB’s New Proposed Rule to Protect Crypto Consumers from Theft

By Mauro M. Wolfe and Carolina Goncalves

Like banks, cryptocurrency firms are not immune from attacks designed to steal consumer assets, which attacks reportedly caused billions in crypto losses for consumers in 2024 alone. As a result, the US Consumer Financial Protection Bureau (CFPB) proposed a rule intended to protect crypto users from illicit activities by requiring cryptocurrency firms to reimburse consumers for stolen funds. The Electronic Funds Transfer Act (EFTA) and Regulation E currently limit consumer liability for unauthorized electronic fund transfers (EFTs) and impose investigation and error resolution obligations (e.g., funds in reserve) on financial institutions when notified that a consumer’s funds have been compromised. The proposed rule would provide similar consumer protections in the event of an unauthorized cryptocurrency transfer from an account established primarily for personal, family, or household purposes.

The EFTA and Regulation E apply to an EFT authorizing a financial institution to debit or credit a consumer’s account. The CFPB’s definition of “financial institution” includes nonbank entities that (a) hold a consumer account or (b) issue an access device and agree with a consumer to provide EFT services. The CFPB has also determined that “funds” include digital assets, like stablecoins, that operate as either a medium of exchange or as a means of paying for goods and services. The CFPB’s definition of “account” is also broad enough to include nonbank asset accounts (e.g., accounts on gaming platforms, virtual currency wallets) with features similar to those of more traditional deposit or savings accounts, such as paying for goods or services from multiple merchants, having the ability to withdraw funds or obtain cash, or conducting person-to-person transfers.

The proposed rule intends to establish a more consistent application of the EFTA and Regulation E to a range of “emergent payment mechanisms” by requiring “market participants offering new types of payment mechanisms to facilitate electronic fund transfers [to] understand whether their account meets the definition of ‘other consumer asset account,’ including whether it is established for ‘personal, family, or household purposes.’” The proposed rule is open to public comments until March 31.

We anticipate material changes to digital asset and blockchain policy when the next chapter begins under the Trump administration. The broader question for consideration is where consumer protection will fit within crypto regulations. We hope for the benefit of retail investors that it is of paramount importance.

Coinbase Wins Another Partial Victory in its Battle for Clarity on Crytpo Regulation

By Sheila Raftery Wiggins and Vincent J. Nolan III

Following its win in the Southern District of New York (SDNY) last week pausing the Securities and Exchange Commission’s (SEC) enforcement suit against it (see our recent blog post on the decision here), Coinbase, Inc. has won another partial victory in the Third Circuit Court of Appeals. This time, Coinbase successfully petitioned the Third Circuit to require the SEC to explain to Coinbase the reasons why it will not engage in crypto rulemaking.  

Over the last several years, the crypto community has been very critical of the SEC’s enforcement by litigation approach, arguing that more clarity was needed on how to comply with the law. In July 2022, Coinbase filed a petition with the SEC, seeking to force the agency to engage in rulemaking and promulgate new rules clarifying how and when digital assets qualify as securities under existing federal securities laws. After some skirmishing in the Third Circuit over the timing of the SEC’s response, in December 2023, the SEC denied Coinbase’s rulemaking petition.

The SEC’s written denial was short, its reasoning contained in a single paragraph. It alluded to three bases for its decision: (1) it disagreed with Coinbase’s concerns (as set forth in the rulemaking petition) that application of existing securities law to the crypto environment was “unworkable;” (2) the SEC had other priorities; and (3) the SEC preferred to proceed incrementally.

While the SEC “suggested” these The Third Circuit found the SEC’s order “conclusory and insufficiently reasoned” and therefore in violation of the procedures under the Administrative Procedures Act. The court noted that any of the three grounds asserted in the SEC’s decision “could be sound and independently sufficient bases for denying a rulemaking petition.”  But the SEC was required to provide more than conclusory statements and had to explain its reasoning to demonstrate that “its decision considered all important aspects presented by the petition and resulted from reasoned decision making.” 

As a result, the Third Circuit granted Coinbase’s petition in part and remanded the matter to the SEC for a more complete explanation of the basis for the denial of the rulemaking petition.

The victory is only partial, however. Coinbase had also asked the Third Circuit to require the SEC to engage in rulemaking. The court declined to order the agency to institute rulemaking proceedings, finding that this was not the “extreme situation” that would warrant the “extraordinary remedy” of a court forcing an administrative agency to engage in rulemaking.  

While the judges in the appellate panel were in agreement on the decision, there was some disagreement as to Coinbase’s argument that it had been denied fair notice and due process.  Judge Stephanos Bibas, who joined the majority opinion, filed an interesting concurring opinion to address what he saw as a constitutional issue that is “not yet teed up,” but is waiting in the wings. Based on the due process principle that regulated parties should know what is required of them so they may act accordingly, Judge Bibas found that the SEC “repeatedly sues crypto companies,” yet “will not tell them how to comply” with the law. “[T]hat caginess,” according to Judge Bibas, “creates a serious constitutional problem; due process guarantees fair notice.”   

While neither the decision itself nor Judge Bibas’ concurrence bring the clarity ultimately sought by the crypto community, the Third Circuit’s decision to require the SEC to explain its denial of Coinbase’s crypto rulemaking petition, coupled with last week’s decision by the SDNY to pause the SEC’s enforcement suit against Coinbase to allow the Second Circuit to opine on the SEC’s application of the securities laws to digital assets, ensure that these issues will now be addressed during and most likely by the Trump administration, which has promised to create a crypto-friendly environment.

Court “Pauses” SEC Litigation Against Coinbase to Allow Appeal to Clarify the Relationship Between Crypto-Assets and Securities Law

By David Golden and  Vincent J. Nolan III

Judge Katherine Polk Failla from the U.S. District Court for the Southern District of New York has paused the Securities and Exchange Commission’s (SEC) lawsuit against Coinbase, Inc. This rare move will allow Coinbase to appeal Judge Failla’s previous decision to deny Coinbase’s efforts to dismiss the SEC’s lawsuit.

In April 2024, Judge Failla, applying the Howey test used by courts to determine whether cryptocurrency transactions should be classified as investment contracts under federal securities laws, had denied Coinbase’s motion to dismiss the SEC’s complaint and allowed the suit to proceed, accepting (at that stage) the SEC’s argument  that “Coinbase’s business of intermediating transactions in cryptocurrency amounted to the operation of an unregistered brokerage, exchange, and clearing agency in violation of federal securities laws.”  

But on January 7, 2025, Judge Failla recognized that the varying decisions in recent years regarding application of the Howey Test (including the Ripple and Terraform cases) demonstrated fundamental difficulties in applying Howey to crypto transactions. Central to this decision was Coinbase’s argument that the tokens at issue are akin to commodities because they have no inherent value outside of the “ecosystem” in which they were issued or consumed and cited examples of other such commodities, including carbon credits, emissions allowances, and even expired Taylor Swift concert tickets. Judge Failla acknowledged the court’s use of the “digital ecosystem” in the application of the Howey test, noting that her own prior decision denying Coinbase’s motion to dismiss had concluded that “crypto-asset transactions met the ‘common enterprise’ prong of Howey because crypto-asset purchasers’ ability to profit depends on the development and expansion of the ecosystem.” Judge Failla ultimately agreed with Coinbase at least to the extent that “[t]here is indeed substantial ground to dispute how Howey is applied to crypto-assets and the role of the surrounding digital ecosystem in that analysis.” 

This decision does not bring the clarity that many seek in the ongoing battle between the SEC and the crypto community. However, the “pause” could give much-needed time for Congress to enact new legislation, for a circuit court to rule on the application of the Howey test, for the Trump Administration to issue new executive orders, or for the new SEC Chairman to settle the case and provide further guidance on the issue.

Virtual Currency Exchanges, Blockchain and Privacy Rights Under the U.S. Constitution

By Mauro M. Wolfe and Carolina Goncalves

Virtual currency exchanges and blockchain technology continue to raise novel questions for U.S. courts, including in the application or limitations of privacy rights to blockchain users under criminal prosecution. In the latest development, a federal appeals court has ruled that defendants do not have the type of privacy protections over crypto transactions that require law enforcement to first secure a search warrant. In short, a regular grand jury subpoena was sufficient to obtain the crypto data, resulting in a solid victory for prosecutors.

In United States v. Gratkowski, 964 F.3d 307 (5th Cir. 2020), the Fifth Circuit Court of Appeals held that there is no privacy interest in both Bitcoin blockchain data and Bitcoin transaction history to justify the requirement that law enforcement secure a search warrant first.

In Gratkowski, the Fifth Circuit analyzed whether the Fourth Amendment protected a criminal defendant’s privacy interests in data located on a virtual currency exchange and the virtual currency exchange’s blockchain. The background is that defendant Gratkowski became the subject of a federal investigation after using Bitcoin to pay for online child pornography. Federal agents were able to identify Gratkowski after analyzing the publicly viewable Bitcoin blockchain to identify a cluster of Bitcoin addresses controlled by the website. The agents then used that information to serve a routine grand jury subpoena on Coinbase for all information on the Coinbase customers whose accounts had sent Bitcoin to any of the addresses in the website’s cluster. The agents identified Gratkowski as one of these customers and thereafter, based on the information from the grand jury subpoena, obtained a search warrant for evidence in his home, where they obtained additional incriminating evidence.

Gratkowski filed a motion to suppress the evidence obtained through the search warrant, arguing that the original subpoena to Coinbase and the blockchain analysis violated his constitutional rights against unreasonable searches under the Fourth Amendment. In effect, the defendant argued that law enforcement needed a search warrant for his records located at Coinbase. The trial court denied the motion, and Gratkowski appealed the decision to the Fifth Circuit.

On appeal, Gratkowski argued that he had a reasonable expectation of privacy in his information held in the Bitcoin blockchain and Coinbase records by comparing it to cell-site location information (“CSLI”), which the U.S. Supreme Court has held to implicate constitutional privacy concerns such that a search warrant is required. The appellate court disagreed with Gratkowski and held that he lacked a privacy interest in both the Bitcoin blockchain data and his Bitcoin transaction history on Coinbase because that information is more analogous to bank records, which are not subject to privacy protections.

In reaching its conclusion, the court applied the third-party doctrine, which provides that a person generally does not have a legitimate expectation of privacy in information he voluntarily turns over to third parties. Specifically, the appellate court found that “Coinbase is a financial institution, a virtual currency exchange, that provides Bitcoin users with a method for transferring Bitcoin. The main difference between Coinbase and traditional banks… is that Coinbase deals with virtual currency while traditional banks deal with physical currency. But both are subject to the Bank Secrecy Act as regulated financial institutions.” The court further focused on “the nature of the information and the voluntariness of the exposure” in concluding that it “weigh[ed] heavily against finding a privacy interest in Coinbase records.” Unlike CSLI, information on the Bitcoin blockchain and held by Coinbase is limited to transaction amounts and identifying information about sender and beneficiary, and each Bitcoin transaction is recorded in a publicly available blockchain accessible to every Bitcoin user. Additionally, transacting Bitcoin through Coinbase or other virtual currency exchange requires the user to perform an “affirmative act” in transacting through a third-party intermediary. Therefore, Gratkowski did not have a reasonable expectation of privacy in either the Bitcoin blockchain data or his Coinbase transaction history requiring law enforcement to obtain a search warrant.

Other U.S. courts have relied on the Gratkowski court’s conclusion that account information and records obtained by the federal government from virtual currency exchanges are not subject to constitutional privacy protections.[1]

We will continue monitoring Gratkowski and its progeny and whether these issues ultimately come before the U.S. Supreme Court.


[1] See, e.g., Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024); United States v. Patel, No. 23-CR-166 (DLF), 2024 WL 1932871 (D.D.C. May 1, 2024); Harper v. Rettig, 675 F. Supp. 3d 190 (D.N.H. 2023), aff’d sub nom. Harper v. Werfel, 118 F.4th 100 (1st Cir. 2024); United States v. Harris, No. 1:21-CR-74-6, 2023 WL 3475406 (S.D. Ohio May 15, 2023).

The Growth of RWA Tokenization

By Joseph E. Silvia and Carolina Goncalves

The tokenization of real-world assets (RWAs) is a growing industry that, as of September 2024, was valued at approximately $118.6 billion. RWA tokenization is projected to become a trillion-dollar global industry by 2030, thanks to the development of infrastructure to facilitate the ownership, exchange and transfer of RWA tokens by some of the largest global financial institutions.

What is asset tokenization?

Asset tokenization is the transformation of physical assets, like real estate, art, bonds, money market funds (MMFs) and stocks, into digital tokens that can be bought, held or traded on a blockchain. The tokens represent ownership or a fractional share in an asset, which facilitates its exchange or transfer. Unlike cryptocurrency, tokenized assets have underlying value that is not necessarily driven by market demand, utility and speculation.

Asset tokenization, together with smart contracts, automate processes and increase transparency and security in the ownership and trade of assets. Smart contracts on the blockchain manage asset ownership and transaction details, such as divisibility and transfer restrictions. Additionally, asset tokenization and smart contracts may improve liquidity, transparency, availability, accuracy, programmability and reduce fraud through blockchain technology.

How does RWA tokenization work?

By way of example, the tokenization of a piece of artwork introduces the ability to invest in the artwork and own a fractional share, rather than purchasing the entire asset. If the artwork is priced at $10,000, for example, asset tokenization allows an investor to purchase the asset in fractions (e.g., 1000 fractional assets of $10 each).

Once the owner’s rights over the artwork are verified, the artwork would be transferred to a blockchain-based platform that supports tokenization, and the asset’s value would be assessed and finalized. The artwork would then be divided into tokens that can be purchased and traded by investors pursuant to the applicable smart contracts.

The future of RWA tokenization

RWA tokenization similarly applies to financial products like MMFs. Major financial institutions like Visa, JPMorgan and Deutsche Bank are implementing platforms for the tokenization of different RWAs, including MMFs. For example, in October 2023, JPMorgan announced its Tokenized Collateral Network (TCN), which is a live product that allows investors to tokenize their MMF shares and collateralize them.

Deutsche Bank announced in May 2024 that it joined the Monetary Authority of Singapore’s Project Guardian, a collaborative initiative involving global policymakers from different countries like the UK and Switzerland, to test a blockchain platform to service tokenized and digital funds.

On October 3, 2024, Visa launched a Visa Tokenized Asset Platform (VTAP). VTAP, which is currently in sandbox mode, allows for the issuance and management of various fiat-backed digital assets like stablecoins, deposits and central bank digital currencies (CBDCs), and will cater to banks by offering a comprehensive infrastructure for securely minting, transferring and settling digital assets across public and permissioned blockchains.

Of course, there are potential challenges like regulatory uncertainty and smart contract vulnerabilities. That said, the increasing prevalence of RWA tokenization among investors and financial institutions in the U.S. and abroad will likely push for more certainty and stability in the industry, further driving its growth.


Bitcoin ETF Launch Expands Trading Opportunities

On November 19, the Options Clearing Corporation (OCC) and Nasdaq launched Bitcoin ETF options—starting with BlackRock’s iShares Bitcoin Trust (IBIT)―signaling a new era of cryptocurrency financial instruments. The launch of Bitcoin ETF options in the United States marks a new moment for cryptocurrency markets. Options promise to transform how institutional and retail investors engage with Bitcoin.

Read more on the Duane Morris Capital Markets Blog.

Impact of the Presidential Election on the Future of Digital Assets in the United States

By Vincent J. Nolan III

During his first term in office, President Trump expressed skepticism about cryptocurrencies, saying that he was “not a fan” and that they were based on “thin air.” However, statements made during the campaign leading to his election on November 5, as well as his family’s involvement in the crypto space, indicate that the new Trump administration now holds a favorable stance toward the industry. The post-election rally in cryptocurrency markets certainly indicates that the industry believes that the incoming Trump administration will be pro-crypto.

In this post, we will explore what the future of cryptocurrency might look like under a Trump-led government, how regulatory changes could unfold, and the potential timeline for meaningful reform.

1. A Pro-Crypto Administration

Based on his campaign rhetoric and the Trump family’s increasing involvement in crypto, it appears that President Trump will be a more crypto-friendly president than his predecessor. For example, his policy proposals have included the following:

  • Aggressively encouraging Bitcoin mining by having – in his words — “all the remaining Bitcoin to be MADE IN THE USA;”
  • Creating a strategic Bitcoin reserve to eliminate the $35-plus trillion U.S. debt;
  • Preventing the creation of a central bank digital currency; and
  • Eliminating oppressive regulation in the crypto space by, in part, firing U.S. Securities and Exchange Commission Chair Gary Gensler “on day one.”

While not all campaign promises become reality, it is likely that the new Trump administration will take an aggressively supportive stance toward cryptocurrency.

2. The SEC Under Fire

On the campaign trail, President-elect Trump pledged to the industry that he will fire SEC Chair Gary Gensler “on day one.” We would expect that Trump will attempt to carry out this promise immediately.

Under Gensler, the SEC has classified many digital assets as securities and, as a result, brought and litigated multiple cases against major crypto exchanges, projects and developers for allegedly selling unregistered securities and other alleged violations. This has led to tension with the crypto industry, with complaints that the SEC is regulating the industry through enforcement, that the regulatory environment is not clear, and that these efforts have impeded innovation and development of the crypto economy.

Whether President Trump can actually or effectively fire Gensler immediately remains to be seen. Gensler’s term currently runs through June 5, 2026, and, having been appointed and confirmed by the Senate, he can only be fired for cause. But as p.resident in his first term, Trump demonstrated that he did not want to be bound by the niceties of the federal appointment process and would creatively work to achieve his ends.

3. Congressional Movement Towards Crypto-Friendly Legislation

The U.S. crypto industry has been pushing hard for regulatory clarity. While the executive branch can take significant steps to shape policy, legislative action will be crucial for ensuring the long-term stability and growth of the crypto industry.

During his presidential campaign, President Trump declared that he will be a pro-crypto president. But it is important to recognize that the crypto industry’s political efforts were not limited to the presidential race and, as a result, over 250 (self-proclaimed) “pro-crypto” candidates were elected to Congress.

Under a Trump-led government, we would expect to see a concerted effort from both the administration and Congress to pass legislation that recognizes cryptocurrency as a legitimate asset class and establishes clear rules for its use and taxation, building upon prior efforts such as the passage of the Financial Innovation and Technology for the 21st Century Act in May 2024 by the House. By highlighting the economic potential of crypto and the need for the U.S. to remain competitive in the global digital economy, the Trump administration could leverage the first truly pro-crypto Congress to pass crypto-friendly legislation that clarifies the legal framework for digital assets.

4. A 12-18 Month Timeline for Crypto Legitimization

Regardless of what happens with the SEC chair, if the Trump administration successfully drives legislative action, we could see significant changes within the next 12 to 18 months.

New legislation that brings regulatory clarity could create new opportunities in the following ways:

  • Open the door for traditional financial institutions, including banks and large investment firms, to participate more actively in the crypto space. These institutions have largely been sidelined due to regulatory uncertainty and the risk of non-compliance with existing laws. Once a clear legal framework is established, these institutions would have more incentive to offer crypto-related products and services, such as custody, trading, and even crypto-based financial products;
  • Retail investors could benefit from greater legitimacy and protections within the crypto market;
  • It could lead to a surge in retail adoption, further driving the price and mainstream acceptance of digital assets; and
  • Losses in crypto and blockchain development to Asian markets could be reversed and the U.S. could again become a haven for innovation in the crypto space.

Conclusion: Crypto’s Bright Future in a Trump Administration

In summary, a second term for Donald Trump could be a game-changer for the cryptocurrency industry in the U.S. With a pro-crypto stance, potential changes at the SEC, and the push for favorable legislation, the next 12 to 18 months could see crypto move from a fringe asset class to a mainstream financial tool. The Trump administration’s focus on deregulation and fostering innovation, combined with pressure from industry stakeholders and the broader financial sector, could help pave the way for a more robust and legitimate cryptocurrency market in the U.S.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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