The Trump administration is committed to balancing innovation and regulation through a national Bitcoin reserve and cryptocurrency-friendly policies, aiming to position the United States as a leader in the global crypto economy.
Authors: Stefanie Wayco, Matthew Catani
Translation: Baihua Blockchain
President Donald Trump is moving towards implementing a cryptocurrency-friendly administrative direction. A clear signal is the appointment of David Sacks as the head of AI and cryptocurrency affairs at the White House.
This appointment has sparked widespread speculation about the role of the "head of cryptocurrency affairs": how will this role operate specifically? Will it have substantial policy-making power? Will it facilitate a clearer regulatory framework? Is Sacks merely an advisor without a formal government title or power? Or will this role push for the establishment of a new government cryptocurrency asset reserve?
A U.S.-backed cryptocurrency reserve could provide much-needed clarity in this digital space—such as which government agency will be responsible for regulating cryptocurrencies—thus paving the way for the full integration of cryptocurrencies into our daily consumption and investment, and promoting the application of blockchain technology in larger-scale government projects.
Bitcoin, as the most well-known digital asset, has long been viewed as the industry standard. Trump has publicly supported calls for the establishment of a strategic Bitcoin reserve.
The new administration has the opportunity to lead a new era potentially defined by innovation, digital credit, and the global acceptance of Bitcoin and other cryptocurrencies, whether they are viewed as securities or commodities.
1. Digital Asset Diplomacy: How the Federal Reserve Can Utilize Cryptocurrency
1) The Role of the Federal Reserve
The Federal Reserve, as the nation's central bank, is responsible for managing monetary policy, controlling inflation, regulating financial institutions, ensuring the efficient operation of payment systems, and promoting consumer protection.
A hallmark of the Federal Reserve is its political independence, allowing it to focus on long-term economic stability. Some of its functions require close collaboration with other federal agencies, including the U.S. Department of the Treasury, the Securities and Exchange Commission (SEC), and the Federal Deposit Insurance Corporation (FDIC), to provide comprehensive oversight and stability.
For example, the Federal Reserve works with the Treasury to manage government debt issuance and the liquidity of the bond market; collaborates with the SEC to enhance the stability of financial markets; and coordinates with the FDIC to ensure the safety of deposits and maintain the integrity of the banking system.
To achieve its goals, the Federal Reserve employs various tools, including adjusting interest rates to influence borrowing costs, conducting open market operations through the buying and selling of government securities, and setting reserve requirements to ensure banks maintain adequate liquidity.
2) The Vision for a Cryptocurrency Reserve
The cryptocurrency reserve plan proposed by Trump—whether its goal is to enhance financial stability, curb inflation, manage national debt, or promote innovation—requires strategic collaboration, with the Federal Reserve being the most suitable institution to lead this process.
Similar to its role in managing traditional assets, the Federal Reserve's involvement in a potential cryptocurrency reserve could determine its success, ensuring alignment with broader fiscal and monetary objectives.
Moreover, the new administration's acceptance of cryptocurrency also indicates confidence in the Federal Reserve's ability to manage a cryptocurrency reserve.
A national cryptocurrency reserve could conceptually serve as a strategic asset, similar to traditional reserve assets like gold. Proponents argue that a cryptocurrency reserve could reduce national debt, free up dollars for other uses, while positioning cryptocurrencies as long-term financial assets.
This reserve could also act as a stabilizing factor, providing reliability and credibility for the full trust in cryptocurrencies, regardless of whether digital assets are classified as securities, commodities, or currencies.
2. Cryptocurrency as a Commodity and the New Gold Standard
1) Historical Background and Standards
Financial standards play a critical role in economic stability and consumer trust. Historically, systems like the gold standard provided a fixed framework for currency valuation, linking national currencies to a specific amount of gold.
Under the gold standard, currency could be exchanged for gold at a fixed rate, providing stability and predictability for financial markets and trade. Central banks maintained gold reserves and limited the money supply to a range proportional to these reserves, thereby promoting fiscal discipline.
Today, the U.S. government guarantees various securities through a so-called "full faith and credit" system, ensuring their reliability even without physical backing. This principle refers to the government's unconditional commitment to meet its debts, thereby enhancing confidence in government-issued securities.
For consumers, "full faith and credit" provides a form of secure and stable credit and investment, backed by the government's ability to collect taxes or issue currency, making investments in financial instruments like government bonds more secure.
From a policy perspective, "full faith and credit" facilitates efficient fundraising for the government through debt issuance. This system supports critical projects, such as infrastructure development and emergency relief programs, while ensuring access to capital markets.
Additionally, it provides a foundation of trust for the broader financial system, supporting policies aimed at promoting economic growth and enhancing economic resilience.
2) Cryptocurrency Plan: Moving Towards Regulatory Clarity
Republican Senator Cynthia Lummis from Wyoming has been actively promoting the idea of establishing a national Bitcoin reserve. Her plan envisions accumulating one million Bitcoins over 20 years to combat inflation and supplement the dollar's role.
The proposal includes converting Federal Reserve gold certificates into Bitcoin and establishing a strategic reserve with a minimum holding period of 20 years.
Future cryptocurrency frameworks need to address issues such as property rights, ownership protection, and secure custody solutions, most importantly clarifying which agency is responsible for regulating cryptocurrencies, and when and how to define them as securities or commodities based on the 1946 U.S. Supreme Court ruling in the SEC v. Howey case.
Lummis's bill addresses these regulatory challenges by proposing a clearer distinction between securities and commodities to simplify compliance requirements for cryptocurrency businesses. The bill includes specific funding mechanisms and regulatory frameworks, transferring some oversight of crypto assets from the SEC to the Commodity Futures Trading Commission (CFTC).
As cryptocurrencies rise, courts have been embroiled in disputes over whether certain digital assets are securities or commodities. This ambiguity has led to various differing and confusing standards for the industry. Therefore, a clearer overall regulatory framework for digital assets that can accept cryptocurrencies in a defined manner is crucial.
Although the Howey test will still apply, this 1946 test seems outdated for cryptocurrencies—something the courts at the time could not foresee.
While digital assets themselves may not necessarily be securities, the new administration's recognition of the entire crypto industry and acceptance of a cryptocurrency reserve may drive the establishment of a new regulatory framework that clarifies the boundaries between securities and commodities.
More explicit legal standards and frameworks will enable companies to better operate trading platforms for cryptocurrencies; allow institutional investments to be more compliant; enable consumers to buy, sell, and use digital assets with confidence; and promote full trust and acceptance of cryptocurrencies.
3) Using the Strategic Petroleum Reserve as a Model
The U.S. Department of Energy, through the management of the Strategic Petroleum Reserve (SPR), demonstrates how government-maintained commodity reserves can influence markets and policies.
Although the SPR primarily targets energy companies and indirectly affects a broad range of consumers, which differs from the cryptocurrency industry, its management model can serve as a foundational model for building a cryptocurrency reserve.
The SPR is used to stabilize oil prices, balance budget deficits, and generate revenue, while providing influence in global markets. Similar to the SPR's impact on energy markets and inflation, a cryptocurrency reserve could have a similar effect on the digital asset market and monetary policy.
In daily operations, the SPR is managed by the Department of Energy, but the president can issue directives for the release of reserves. Congress can also authorize the sale of oil from the SPR to fund government spending or address emergencies and legislative needs, such as regular sales to influence reserve levels.
Thus, the SPR influences financial and monetary policy, including stabilizing oil prices, energy commodities, and inflation expectations.
Similarly, a cryptocurrency reserve could stabilize the cryptocurrency market, counter economic instability, and promote global adoption of cryptocurrencies. Just as Congress authorizes the sale of the SPR to fund government projects, legislative requirements could also dictate the use of crypto reserves.
If a Bitcoin reserve is established, the Federal Reserve would play a role similar to that of the SPR, while the CFTC could manage the underlying assets like the Department of Energy, becoming the regulatory and governing body.
The Federal Reserve would strategically influence crypto-related policies while managing and stabilizing the government's cryptocurrency asset funds. It could also ensure that reserve surpluses are used to balance budgets and generate revenue, while protecting consumers' fundamental interests.
The Federal Reserve would also continue to set interest rates, borrowing, and funding government projects while using cryptocurrencies as collateral.
Lummis's bill indicates that the Treasury will play a role in managing and securing the Bitcoin reserve, just as the Treasury currently collaborates with the Federal Reserve.
The decentralized treasury system proposal managed by the Treasury could provide secure storage for the national cryptocurrency reserve, addressing ownership and custody issues while ensuring transparency and accountability, in line with the public's growing acceptance of full trust in cryptocurrencies.
3. The Path of Balance: Efficiency, Innovation, and Development
The vision of establishing a national cryptocurrency reserve reflects a transformative vision for the U.S. economy, combining traditional financial principles with emerging digital technologies.
However, the evolution of cryptocurrency policy marks a significant shift, as the initially decentralized vision of Bitcoin is moving towards a more regulated and government-integrated future.
1) Challenges and Balance
The current challenge is to balance the efficiency of consumer use, investment, and innovation in digital assets while maintaining its decentralized historical ideals. Although decentralization is at the core of the industry, its rapid development has reached a point where a certain degree of regulation and limited government intervention is necessary to provide clear legal standards and consumer protection mechanisms. This demand is particularly necessary under the new administration's "full faith in cryptocurrency" policy.
To develop, "rules of the game" must be established to allow everyone to compete within the same framework.
By embracing cryptocurrencies, the new administration has the potential to develop a future characterized by innovation, stability, and global leadership in the digital asset space. Whether through federal programs, state-level efforts, or regulatory reforms, the U.S. has the capacity to strategically explore this new domain with vision and adaptability.
2) Ongoing Uncertainty and Global Competition
Congress's concerns about economic stability and inflation make approval challenging, while public skepticism and regulatory uncertainty may hinder progress. Whether the new administration can find the right regulatory balance between efficiency and innovation will determine the success of the national cryptocurrency reserve and the entire U.S. cryptocurrency industry.
It is noteworthy that as other countries are formulating cryptocurrency policies, the United States risks falling behind if it does not take proactive measures. Establishing a cryptocurrency reserve and implementing supportive regulations can solidify the U.S. leadership position in the global crypto economy, driving innovation and investment.
3) U.S. Standards and Global Leadership
The United States has consistently been known for high standards in consumer protection, data security, and financial transaction rules, while also being a leader in capital markets.
Therefore, if other countries take the lead in this area, the U.S. may face the risk of unstable policies and insufficient protection for digital assets. To reinforce its status as the global cryptocurrency capital, the U.S. should lead industry development with a "full faith in cryptocurrency" approach.
Note: Stefanie Wayco is a partner at Duane Morris LLP, Matthew Catania is a senior attorney, and Gregory Bailey is an attorney.
The views expressed in this article are solely those of the authors and do not represent the views of their employers, clients, or Portfolio Media Inc. and its affiliates. This article is for general informational purposes only and should not be construed as legal advice.
Link to the article: https://www.hellobtc.com/kp/du/01/5653.html
Source: https://www.duanemorris.com/articles/blueprintfornationalbitcoinreserve_0125.html
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