How the New Pro-Crypto Congress Could Impact U.S. Crypto Regulations

The recent election has introduced the most pro-crypto Congress in U.S. history, with over 219 pro-crypto candidates
now in the House and Senate. Coupled with a new pro-crypto administration, this shift in political climate could
significantly reshape cryptocurrency regulation in the U.S. Here, I’ll discuss how this Congress may influence the regulatory landscape, what policies may be prioritized, and how these changes might impact both domestic and global crypto markets.

1. Current Regulatory Landscape for Crypto in the U.S.

Cryptocurrency activities in the U.S. are regulated at both federal and state levels, resulting in a complex regulatory environment. Federal agencies like the Financial Crimes Enforcement Network (FinCEN) and the Securities and
Exchange Commission (SEC) play significant roles in overseeing crypto-related activities and members of both are appointed by the president and confirmed by the U.S. Senate.

FinCEN is a part of the Department of the Treasury, regulates crypto exchanges as money services businesses
(MSBs). Crypto exchanges and service providers must comply with federal anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

The SEC oversees securities, including certain tokens that fall under the definition of an investment contract. This
has led to regulatory uncertainty, as issuers of tokens must carefully navigate SEC requirements to avoid being
classified as unregistered securities.

In addition to federal oversight, states have their own crypto regulations, such as New York’s BitLicense and Money
Transmitter Licenses (MTL) required in other states. Each state has the constitutional right to implement its regulatory
framework, adding another layer of complexity for businesses operating nationwide.

To offer crypto-related services as a crypto asset service provider, one must obtain either MSB authorization, MTL
authorization, or both. And there is no registration or licensing required for issuing a token.

2. Potential Impact of the New Congress on Crypto Regulations

With a pro-crypto administration and a Congress more favorable toward crypto assets, we may see an increased focus
mostly on federal-level regulatory reforms. Given the decentralized regulatory nature, any regulatory shift would
likely be limited to federal agencies and federal laws, while state-level regulation may remain fragmented.

2.1 Crypto-Assets Service Providers

As mentioned, crypto-assets service providers, including exchanges and custodial services, are already heavily
regulated by both FinCEN and state licensing requirements. For instance, to operate in states like New York, companies need a BitLicense, while in other states, they may need an MTL.

Although the new Congress may push FinCEN to simplify application requirements for MSBs dealing with crypto,
breakthrough changes are not expected. At the federal level, there may be a shift toward reducing compliance
burdens, possibly encouraging platforms like OKX, which currently don’t operate in the U.S., to consider entering the
market. But it’s unlikely that the U.S. will adopt a unified legal framework similar to the European Union’s Markets in Crypto-Assets (MiCA) regulation due to state’s constitutional autonomy.

2.2 Token Issuers

One of the areas where a pro-crypto Congress could bring meaningful change is in the regulation of token issuers.
Currently, token issuers face uncertainty with the SEC, as tokens sold as part of an investment contract can be classified as securities. This ambiguity has led many issuers to rely on registration exemptions, but they remain at risk of SEC enforcement actions.

The SEC has pursued legal action against several crypto issuers, asserting that tokens sold through investment contracts should inherit the contract’s security status. This stance has created uncertainty and stifled innovation, as issuers remain in fear of their tokens being reclassified as securities post-launch.

With a more crypto-friendly Congress and administration, we could see the introduction of a federal registry or
licensing system for token issuers.

Such a framework could provide much-needed clarity for token issuers, reducing the risk of sudden SEC enforcement.
By registering or licensing tokens from the outset, companies would gain assurance that their tokens are compliant, fostering a more predictable environment for innovation in the U.S. crypto space.

Not to mention that the new president could bring practical improvements for crypto service providers by making
changes at the SEC.

Recently, the SEC has filed lawsuits against developers of popular non-custodial software products, claiming that these developers are facilitating securities  transactions. This action has introduced substantial risk and uncertainty into the market.

What is more, the current SEC registration requirements for securities exchanges don’t align with the operational
models of centralized and decentralized crypto trading platforms. Registered exchanges are only allowed to list registered securities, but most crypto assets in circulation today aren’t registered with the SEC.

More loyal, pro crypto SEC alogside with a clear registry of approved crypto assets might critically solve these issues
making the market more safe for its participants and attractive for investments.

3. Potential Global influence of a Pro-Crypto U.S. Administration

The U.S. plays a significant role in the global financial market, and a pro-crypto administration would likely impact the international crypto landscape as well. If the U.S. moves toward a more transparent and predictable regulatory
framework, it will courage global medium businesses emerge the US markets. This shift could enhance the U.S. position in the global crypto industry, making it more competitive against regions with established regulatory frameworks, such as the EU, Singapore, Canada, UK.

Conclusion

In summary, while crypto service providers may benefit from minor regulatory improvements under the new pro-crypto Congress and administration, issuers of tokens could see more substantial developments. A possible federal registry or licensing system for tokens could bring much-needed clarity, supporting innovation and potentially drawing more global crypto projects to the U.S.

As the regulatory landscape in the U.S. shifts, these anticipated reforms could make the global crypto market more accessible and transparent. However, businesses should stay alert, as state-level regulations and individual agency requirements will likely continue to add layers of complexity to operating in the U.S.