As Donald Trump readies himself to make waves in the crypto scene, the announcement of a presidential crypto council is a huge deal. This could bring much-needed clarity to regulations and spark innovation. But how will it affect the global crypto market? Let’s dive into what Trump’s crypto policies might mean, from tossing aside SAB 121 to promoting international cooperation.
Trump's Crypto Policies
Here we are. President-elect Donald Trump is gearing up to drop a few significant executive orders on day one, focusing on the crypto sector. Word from his transition team is that crypto is set to be a big part of the new administration’s agenda, ready to tackle the industry's pressing challenges.
The Presidential Crypto Council
One of the first things that’s expected to happen? The formation of a presidential crypto council. This will likely consist of about 20 bigwigs from the cryptocurrency world—mostly CEOs and founders. They’ll be there to dish out policy guidance, advise the president on digital asset issues, and basically help steer the ship during Trump’s term.
This move comes after the crypto community has been clamoring for a more organized conversation with regulators and lawmakers. Earlier, David Sacks, a former PayPal exec and early Bitcoin backer, was tapped as the White House's crypto czar. His appointment signals a pivot to a more crypto-friendly regulatory climate.
Implications for Asian Fintech Startups
The ripple effects of Trump’s crypto policies could be significant for small fintech startups in Asia. If the U.S. decides to play nice with crypto, this might lead to:
- Regulatory Clarity and Stability: Clearer regulations could encourage other countries, including those in Asia, to follow suit. This would be a boon for fintech startups trying to navigate different jurisdictions.
- Economic Implications: On the flip side, Trump’s tariffs and economic policies could throw some curveballs, potentially stalling investments in Asian startups and complicating their operations.
- Market Sentiment and Banking Access: A pro-crypto stance from Trump could lift market sentiment and ease banking access for crypto firms, which would be a plus for Asian fintechs.
The Repeal of SAB 121
Expect another focus to be the SEC’s much-maligned accounting rule, SAB 121. This rule forced firms holding cryptocurrency to categorize the customers' digital assets as their liabilities. Unsurprisingly, this rule has been met with backlash from the crypto community, as it makes financial reporting a headache and discourages U.S. banks from getting involved with digital assets.
If Trump’s first-day orders include the repeal of this rule, that’ll be a welcome move for the industry. Congress had already voted to repeal SAB 121 in 2023, but President Biden nixed it, leaving the rule intact.
Risks of Repealing SAB 121
However, this repeal could have its downsides.
- Reduced Transparency: Without the requirement to treat crypto assets as liabilities, companies might not disclose the full extent of risks they’re exposed to. This could mislead investors and destabilize the market.
- Impact on Regulatory Oversight: The rule’s existence ensures custodians are held to higher standards of risk management and compliance, which protects consumers.
- Lack of Custody Diversification: Repeal could concentrate custody services among non-bank entities, which may not face the same scrutiny as banks do.
- Increased Systemic Risk: The repeal might let banks offer crypto custody services without strict capital requirements, raising systemic risk concerns.
International Cooperation and Regulatory Alignment
Beyond the crypto council and SAB 121, there may be more on the horizon. The new administration is considering creating a crypto working group made up of officials from the SEC and the CFTC to streamline regulations around digital assets.
Moreover, Trump may direct the Secretary of State to work with international partners to foster cooperation on crypto innovation. This could be a move to ensure the U.S. stays ahead in the development and adoption of digital assets.
Learning from International Crypto Regulations
To sidestep financial instability, the U.S. could take cues from international crypto regulations.
- European Union (EU) Regulations: The EU’s MiCA lays out strict guidelines for the crypto industry, from licensing requirements to enhanced AML/CFT measures.
- Asian Regulations: Japan and South Korea have differing approaches. Japan recognizes cryptocurrencies as legal property and requires exchanges to register with the FSA. South Korea’s law strengthens user protections with added transparency requirements.
- British Regulations: The UK requires companies offering digital currencies to be authorized by the FCA, while the Bank of England has proposed regulations for stablecoins.
- Global Standards and Cooperation: The BCBS has set standards for crypto-asset exposures, emphasizing the need for harmonized international regulations.
Addressing the “De-Banking” Problem
Trump’s team is also looking to tackle the “de-banking” issue, where crypto firms have a tough time accessing traditional banking services. For years, crypto companies have struggled with banking because many financial institutions are wary of getting involved due to regulatory uncertainty. Trump’s focus on this problem could help improve access to financial services for the crypto industry.
Summary
The formation of a presidential crypto council and the possible repeal of SAB 121 are notable moves in Trump’s plans for the cryptocurrency sector. They could bring clarity to regulations and spark innovation, but they also come with risks. By learning from international regulations and encouraging global cooperation, the U.S. can navigate these changes to ensure a stable and thriving digital asset market. The influence on Asian fintech startups and the potential for increased systemic risk are all crucial factors in shaping the future of crypto under Trump’s leadership.
