Efforts to shape the future of crypto regulation have been top of mind for policymakers and regulators in Washington. The focus on digital assets, driven by a number of factors including perceived hostility toward the industry from the SEC combined with unprecedented levels of political spending, has helped legislative efforts gain bipartisan traction. Given the outsized role the industry is having on the 2024 election, crypto and blockchain technology will continue to be in focus in the next Congress and new administration.
This edition of Carta’s Election Outlook will outline the political and policy debate around the evolving regulatory landscape for the crypto industry, including:
Crypto policy: The basics
The rise of crypto
Since Bitcoin's introduction in 2009, digital assets have expanded from niche investments into a multi-trillion-dollar market that includes major cryptocurrencies like bitcoin, stablecoins, and decentralized finance (DeFi) platforms. This expansion has not been smooth: The crypto market has experienced extreme volatility, legal battles, high-profile scandals like the collapse of FTX, and concerns over hacking theft and crypto’s role in facilitating money laundering and other illicit activities. As crypto has gone mainstream and become more embedded in the financial ecosystem, the political and regulatory debate has intensified, turning crypto into a top issue for Congress and the regulators.
The players: Congress and the regulators
Congress
Congress is focused on establishing a regulatory framework that addresses everything from consumer protection to taxation to market stability, while providing greater clarity for the crypto industry, though none of these efforts have been signed into law. However, there is a split between legislators who advocate for a more permissive approach as a way to encourage innovation and those who seek stronger safeguards against fraud and criminal misuse. And while congressional activity has ramped up within the primary committees of jurisdiction, the issue touches additional committees, such as tax, cybersecurity, energy, and others, outlined below:
The regulators
In the absence of congressional action, financial regulators have used their own jurisdictions and enforcement tools to police the crypto industry. Together, these players create a complex and often fragmented regulatory environment, with ongoing debates over which agency should have primary oversight and how to craft policies that balance innovation with security and consumer protection.
The SEC under Chair Gary Gensler has been the most aggressive, both in terms of enforcement and regulation for the crypto industry. The next administration and SEC leadership will largely determine the trajectory of crypto regulatory policy.
Securities and Exchange Commission (SEC): The SEC is the primary securities regulator in the U.S. Under Gensler, the agency has taken the position that most cryptocurrencies are securities, meaning the digital assets and trading platforms would be subject to existing securities laws, which were not designed to account for the unique characteristics of digital assets. The agency has largely rebuffed calls from the industry for rulemaking or guidance on how the existing securities framework should apply to digital assets, maintaining the applicable law is “clear.” As such, the approach to regulation has largely been through enforcement measures rather than clear rulemaking, which has caused tension with the industry and policymakers and has helped fuel legislative efforts to define the crypto regulatory landscape.
Commodity Futures Trading Commission (CFTC): The CFTC has taken the position that certain cryptocurrencies, notably bitcoin and ethereum, are commodities rather than securities. This gives the agency jurisdiction over crypto derivatives, like futures and options contracts, but its power over spot markets (where cryptocurrencies are traded directly) is more limited. The CFTC advocates for a clearer regulatory structure and more authority over digital assets, aiming to promote market integrity and protect against fraud and manipulation in the crypto markets. While the CFTC has been viewed as more friendly toward the industry, the agency has also taken a strong enforcement posture.
Treasury Department: The U.S. Department of the Treasury is tasked with ensuring that cryptocurrencies are not used for illicit activities like money laundering, terrorist financing, or sanctions evasion. Through its Financial Crimes Enforcement Network (FinCEN), Treasury imposes anti-money laundering (AML) and Know Your Customer (KYC) regulations on crypto exchanges and service providers. Treasury, through the IRS, also influences tax policy for crypto assets, and has ramped up efforts to ensure compliance and close the " crypto tax gap."
Banking regulators: As the central bank of the United States, the Federal Reserve is primarily focused on the macroeconomic and financial-stability implications of cryptocurrencies. The Fed is exploring the possibility of issuing a central bank digital currency (CBDC) as a response to the growing prominence of private digital currencies and stablecoins, though the current chairman has indicated the Fed would only act at the direction of Congress.
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) also have roles to play, particularly as they regulate banks and financial institutions that may wish to engage with cryptocurrencies. The OCC has issued guidance allowing banks to provide custody services for digital assets, while the FDIC assesses the risks posed to insured banks involved in crypto-related activities.
Political dynamics
Republicans
Republicans have embraced digital assets and blockchain technology, focusing on the need for a constructive regulatory framework that allows the industry to continue to develop and disincentives it from moving offshore. Former President Donald Trump, a previous skeptic, is now billing himself as the pro-crypto candidate, embracing policies that crypto advocates believe would promote a better regulatory environment for digital assets and promote more decentralization of the financial system. Trump also announced the launch of a new family crypto venture and has incorporated NFTs and bitcoin payments in his campaign.
SEC posture in Trump administration: A second-term Trump SEC is expected to engage more with the industry and Congress to craft a digital asset framework through rulemaking and guidance. In a Trump presidency the agency would also likely look to tailor the securities law framework to the nascent industry by exempting crypto companies and transactions from certain regulations. Commissioner Hester Peirce has advocated for allowing crypto companies to use “regulatory sandboxes,” which would enable innovative technologies to operate in the market and better inform the appropriate regulatory framework.
Democrats
While Republicans have embraced crypto and blockchain technology, Democrats are more of a mixed bag, though support is building in the ranks. Some progressives, however, remain skeptical of advancing any legislation that could be seen as adding legitimacy to the crypto industry, which they generally view as a highly speculative asset with no intrinsic value that can serve as a vehicle for illicit finance.
The Biden administration has largely been viewed as hostile toward crypto, particularly Gensler’s enforcement-first approach to regulating the industry. Under Gensler, the SEC has used its enforcement tools to attempt to regulate all sides of the crypto ecosystem—from token offerings, to platforms, to promoters—rather than through rulemaking or additional guidance.
Harris has not outlined specific policies on crypto, but has signaled she will take a more open and collaborative approach. She recently vowed to encourage investment in digital assets and other innovative technologies, highlighting the need for consistent and transparent rules and strong investor protection.
SEC posture in Harris administration: The SEC under a Harris administration would likely be more crypto industry-friendly than the current Biden administration but more restrictive than a Republican administration. The SEC would likely maintain robust oversight and enforcement efforts, though there have been indications of a change in tone with respect to engagement and coordination with the industry and Congress. The SEC has recently appeared to soften its stance by approving Bitcoin and Ethereum exchange-traded products.
Pro-crypto Democrats have pushed for Gensler’s removal, but it is likely he would continue to serve in his current role at least for some time in a Harris administration, given anticipated challenges in navigating the Senate confirmation process.
Congressional efforts
Despite progressives’ skepticism, there is growing bipartisan consensus on the need to develop a comprehensive regulatory framework to oversee the industry and its continued integration into the broader financial system. Bipartisan momentum has been building this Congress in the form of legislative proposals across multiple committees in both the House and Senate. It’s possible that a bill makes it across the finish line this year, but the chances are dwindling as the legislative calendar winds down. These efforts will serve as the foundation for activity in the next Congress, where there is optimism a new administration will lead to more favorable outcomes.
Comprehensive regulatory framework
Bipartisan lawmakers in the House and Senate are working to define a market structure framework for digital assets, which could govern key aspects including jurisdictional lines between the CFTC and SEC and regulatory obligations for crypto issuers and intermediaries. Earlier this year, the House passed the Financial Innovation and Technology for the 21st Century (FIT21) Act with strong bipartisan support and the backing of key Democratic leaders, despite opposition from the SEC and progressives. There has been a similar effort in the Senate with the Gillibrand-Lummis Responsible Financial Innovation Act, which aligns with the House bill on the definition of security versus commodity and the role of the CFTC, but differs as it relates to the tax treatment of digital assets and the ability for digital asset companies to become depository institutions. These similarities and differences are outlined below:
Obstacles: While FIT21 passed with bipartisan support, senior Democrats on the Financial Services Committee campaigned against it, the Biden Administration opposed it, and the SEC—in a rare intercession—formally opposed the bill. Progressives are pushing for stronger AML protections and have concerns around the weakening of investor protections if more oversight responsibility is transferred to the CFTC. There were also hesitations surrounding the environmental impact of cryptocurrency.
Outlook: FIT21 (or any comprehensive crypto framework) is unlikely to advance in 2024, but these efforts provide a strong foundation for Congress to act next year. Slim margins and the potential for divided government will require any effort to maintain bipartisan support. Anti-crypto Democrats have been losing influence, though the balance of power could shift if those members return to lead the relevant policy committees. If Democrats regain control of the House, Rep. Maxine Waters (D-CA)—a crypto skeptic—is likely to lead the House Financial Services Committee. This would make the path forward harder, but passing bipartisan legislation is still likely given the previous crypto support of Democratic leaders, including former Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer. To gain the support of crypto skeptics, however, additional concessions to bolster investor protections would likely be necessary.
Stablecoins
Several stablecoin legislative proposals have been introduced in Congress, each aiming to define the regulatory landscape for these digital assets (which are supported by secure assets such as dollars or Treasuries and thus serve as a bridge between crypto and the traditional financial system). Key provisions from the bills that have emerged in the House and Senate are outlined below:
CBDCs: Discussion around the establishment of a U.S. government-issued stablecoin, or central bank digital currency (CBDC), is currently stalled, though it may resurface in a Harris regime, especially as other countries, such as China, advance their own CBDCs. While Democrats generally support CBDC for its potential to expand financial inclusion, there has been strong opposition from Republicans, who argue that granting the federal government an expanded ability to monitor citizens’ financial transactions raises substantial concerns around privacy. Republicans also argue that a CBDC could crowd out private-sector innovation.
Obstacles: Despite bipartisan interest in establishing stablecoin regulations, several obstacles persist. Democrats generally favor strong federal oversight of stablecoins to ensure uniform standards across the country, preferring to have a single federal regulator—likely the Federal Reserve or another federal agency—to oversee stablecoin issuers. Republicans support a dual regulatory framework that allows both state-level regulation and federal oversight, allowing states to continue regulating stablecoin issuers under state charters, particularly in crypto-friendly states like Wyoming. Further, Democrats prefer to treat stablecoin issuers similarly to banks, with stringent requirements for reserve backing, liquidity, and consumer protection, whereas Republicans are more open to allowing non-bank entities (e.g., fintech companies) to issue stablecoins, provided they meet certain regulatory criteria.
Outlook: Stablecoin legislation is seen as the “low-hanging fruit” when it comes to digital asset policy, though nothing is easy in congress or digital assets. A measure could possibly advance this Congress in the post-election “lame-duck” session, and bipartisan financial services leaders appear motivated to advance a deal.
Other issues
Regulatory coordination and innovation sandboxes
Congress has toyed with the creation of dedicated Financial Services Innovation Offices (FISOs) for crypto and fintech aimed at supporting technological advancement in the financial sector. The offices would operate within an existing regulatory agency, such as the SEC or CFTC, and would establish regulatory sandboxes, allowing companies to test new blockchain and crypto-based products under lighter regulatory scrutiny while ensuring compliance with core regulations.
Custody
SAB 121, issued by the SEC in 2022, provides guidance requiring publicly traded companies to account for crypto-assets held on behalf of customers as liabilities on their balance sheets, which would impose onerous capital requirements and effectively block banks from providing crypto-asset custody. In response, members of Congress and banking regulators have pushed back, with the House and Senate passing resolutions to overturn the guidance. Despite the pushback, the SEC maintains that SAB 121 is necessary to protect investors by ensuring transparency in the handling of crypto-assets, signaling its commitment to stringent digital-asset regulation.
Tax
Crypto tax policy in the U.S. has evolved significantly, with the IRS treating cryptocurrencies as property since 2014. However, the complexity of the current tax regime has led to calls for reform, particularly to address issues such as frequent crypto transactions and decentralized finance (DeFi) activities which make tax compliance burdensome. These efforts include:
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De minimis exception for crypto transactions: The Virtual Currency Tax Fairness Act would provide a de minimis exemption for small crypto transactions—specifically, excluding transactions under $200 from capital gains tax reporting. The goal is to facilitate the use of cryptocurrencies as everyday payment methods by removing the tax burden on low-value transactions, which would otherwise require reporting every gain or loss, no matter how small.
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Tax reporting for crypto brokers: Another area of focus in crypto tax policy reform is improving reporting requirements for crypto exchanges. The Infrastructure Investment and Jobs Act (2021) introduced new requirements for crypto brokers to report transactions to the IRS, similar to the way stock and bond brokers report trades. However, this has raised concerns about the definition of "brokers" being overly broad, potentially affecting miners, developers, and others not traditionally involved in brokering transactions. This has prompted further discussions on how to refine the tax reporting process to capture accurate data while not overburdening participants.
Net/net
Crypto will remain a focus for Congress and the next administration, and regardless of election outcomes, a more formal regulatory regime for digital assets is coming. Despite numerous setbacks, the crypto industry has devoted significant resources on both the policy and political fronts, and those investments are working. Republicans are solidly behind the industry, and support among Democratic ranks is gaining traction, which makes it likely that the next administration will work with the digital-asset industry and Congress to provide more regulatory clarity. The path forward will largely be shaped by leadership at the SEC and committees of jurisdiction–in addition to the courts—so engagement will be key.
