The digital asset framework that Wyoming has been setting up has been hailed by digital asset companies as innovative and cutting edge — but it was facing huge headwinds from an unfriendly Biden administration, with a forecast of decidedly stormy clouds ahead.
That weather forecast now, however, looks like it might be changing to sunny and clear skies ahead, with president-elect Donald Trump coming on board, promising to bring an administration that is much friendlier to cryptocurrencies and other digital assets.
Bitcoin prices have reflected some of the optimism, surging to a new record on Monday at $87,000.
Most analysts were crediting the “crypto-friendly” nature of the incoming administration for that surge, which many in the sector are hoping will translate into regulatory clarity, as well as wiggle room for new and innovative products that aren’t like typical securities investments and don’t always fit into a neat, traditional box.
“It certainly seems that he has surrounded himself with people who really get it,” Custodia Bank CEO Caitlin Long told Cowboy State Daily. “And you know, it’s not an accident that we’re in a bull market.”
Some of that is the natural cycle of Bitcoin, Long said, which halves every four years and then begins to accrue new value.
“Obviously, Trump lifting some of the regulatory morass that has been a noose around the industry’s neck is also important,” she said.
Turning The Anti-Crypto Army Into A Pro-Cyrpto Army
Long’s company, Custodia Bank, which wants to provide custody of digital assets such as cryptocurrency, has been in a protracted battle with the Federal Reserve for a master account. That is a bank account for banks that allows institutions access to Fed services.
Custodia Bank is one of Wyoming’s Special Purpose Depository Institutions, otherwise known as a “speedy” bank, that would provide custody of digital assets with 100% or better reserves on hand. The law was set up by working hand-in-glove with the Kansas City Federal Reserve, which had 100-plus meetings with Wyoming lawmakers to provide its guidance on the law’s framework.
Everything seemed on track for Long’s company to gain the coveted master account, until the Biden administration came aboard. Once that happened, Long’s company went from a “no showstoppers” description in internal Federal Reserve memos to more like an everything here is wrong description.
That resulted in a lawsuit over the master account, which Long said was being arbitrarily and unfairly denied.
An appeal in the Custodia Bank suit is still pending, and is expected to be heard Jan. 21 — one day after Trump takes office.
What Long and others in the digital asset sector who have faced enormous headwinds are hoping for is a reversal in guidance and interpretive letters with agencies that have “tried to kill this industry.”
“Personnel is policy,” Long said. “So, we’re all waiting to see who he nominates for the critical roles — The Treasury Secretary role, but also the SEC, the FDIC, the Fed and the OCC.”
The Office of the Comptroller of the Currency is an independent banking agency within the Treasury Department. It regulates, charter, and supervises national banks, federal savings associations, and the federal branches and agencies of foreign banks.
“Elizabeth Warren’s people are all in those positions now,” Long said. “And she started the anti-crypto army.
Gensler, You’re Fired
Trump has promised on “day one” to fire SEC Chair Gary Gensler.
Gensler, in particular, has attracted the ire of the digital asset industry by arguing that digital assets didn’t really need any new rules tailored to their unique properties. Existing securities laws already cover them, he suggested.
This regulation by enforcement mentality had the SEC going after some of the biggest guns in the cryptocurrency sphere — Wyoming’s Kraken, Coinbase and Binance, to name a few.
But while some digital assets do fit into the traditional mold of security or stock investments, where the hope is they accrue in value over time, not all of them do. Digital assets can range from tokens to represent club membership to things like utility tokens that expressly aren’t expected to accrue in value at all. Instead the goal is that they retain the same value over time, and their use is to speed transactions and possibly also eliminate costly transaction fees.
The latter use is what American CryptoFed DAO, Wyoming’s first legal Decentralized Autonomous Organization, had proposed for its digital assets, which includes a utility token for governance, and a different token to represent digital dollars used to complete transactions.
DAO’s are entities not intended to be governed by a central organization. They are instead run by a computer program decided upon by DAO members. The DAO would implement those decisions using smart contracts that are automatically executed, without fear or favor.
Any member can audit the rules and see the transactions. DAO members vote on the decisions that guide the smart contracts, with each member of the DAO receiving a governance token to represent their voting rights in the organization.
Neither the governance or transaction tokens are intended to accrue value like a stock or security. The governance token is for casting votes. And the idea for the transaction tokens, in particular, is to keep each token used for an exchange at a stable, unchanging value. That way, the dollars in equal the dollars out.
The purpose in this case isn’t to make money for the members, but to avoid costs that members now face from credit card company fees for transactions when consumers buy their products.
The SEC ultimately decided that American CryptoFed had to file as a security and suspended its registration — but there were multiple line items on the securities form that required nonsensical answers, American CryptoFed DAO’s CFO Xiaomeng Zhou has told Cowboy State Daily.
It was a “Catch 22” where the government was telling the company it had to register as a security, but not providing any guidance that would make it possible to actually do so.
Zhou said he’s confident President Trump will “reinstate the rule of law in the U.S. Securities and Exchange Commission.”
“Therefore, CryptoFed, as the first Decentralized Autonomous Organization (DAO) established under Wyoming DAO legislation anticipates that it will be able to launch its governance token soon.”
What About Firing Federal Reserve Leaders?
Trump has also threatened to fire Federal Reserve figures such as Federal Reserve Second Vice Chair Mike Barr.
Long said she learned through the discovery process in her legal case that it was Barr who decided to squelch Custodia Bank’s application for a master account and block it from accessing Federal Reserve Services.
While Trump might want to fire Barr, it’s not clear that he has the legal authority to do so.
Federal Reserve Chairman Jerome Powell recently told reporters that since the central bank is an independent body, it’s “not permitted under the law” for presidents to simply remove its members.
Powell, whose term doesn’t end until 2026, also said he would not leave if asked, and that the president can’t fire him either.
Some experts, however, believe that Trump could demote Powell, leaving him to serve out his term in a lesser role. Trump could then name a successor, with the advice and consent of the Senate.
That’s assuming nothing about the structure of the Federal Reserve changes, though.
Trump now has both a friendly Senate and a friendly House. His political ally, Stephen Bannon, recently suggested to a Politico reporter that Trump can and should look at the entire structure of governance, starting with the “whole structure of the Federal Reserve.”
Wyoming Lawmakers Cautiously Optimistic
Sen. Chris Rothfuss, D-Laramie, co-chair of the Wyoming’s Select Committee on Blockchain, Financial Technology and Digital Innovation Technology, is taking a wait and see approach with a Trump presidency.
“His recent support for crypto sounds promising but I’m skeptical his administration will follow through,” he said. “In the past, he’s called Bitcoin a ‘scam against the dollar’ and pushed for strict rules, so this new stance may not last.
“Powerful financial institutions, which oppose our crypto efforts, still hold sway in Washington, and it’s uncertain if Trump will support Wyoming’s leadership and freedom to innovate or side with those who resist change.”
If his recent change of heart for digital assets does take hold, though, Rothfuss said he would anticipate Wyoming’s SPDIs facing less federal interference which would allow the state to “build a strong future in blockchain and digital assets without constantly battling federal restrictions.”
Rep. Daniel Singh, R-Cheyenne, also a member of the Wyoming Select Committee on Blockchain, said he looks for Trump to increase the accessibility of digital assets not just in Wyoming but America.
“This administration has come out in full support of, specifically, cryptocurrencies and NFTs, and I anticipate we are going to see the evolution of our banking system, incorporating these different types of digital assets.”
Friendlier Legislature Likely To Play Bigger Role
Rep. Mike Yin, D-Jackson, who also sits on Wyoming’s Select Committee on Blockchain, told Cowboy State Daily he expects the most change not from the office of president itself, but from legislators on Capitol Hill.
“I think that the Senate majority control, where you have Senator Lummis as a possible chairmanship, would probably lead to more changes for digital assets than almost any other position,” he said. “So regardless of who is in the presidency, I think that’s the biggest deal for Wyoming’s (digital asset sector).”
Financial Technology and Digital Innovation Technology
It’s been suggested that Lummis is in line for a potential appointment as Secretary of the Department of the Interior.
But Lummis’ name has also been circulated as chair of the Digitial Asset Subcommittee during the 2024 Wyoming Blockchain Symposium in Jackson Hole.
“That was in August,” Long said. “Tim Scott and Senator Lummis were on stage together, and he said that if the Republicans take the Senate, which is what happened, and he became Senate Banking Chairman, that he would appoint Senator Lummis to be chair of the Digital Asset subcommittee.”
Lummis declined an interview with Cowboy State Daily but sent an emailed statement.
“Wyoming was the first state in our nation to adopt comprehensive digital asset legislation and it is past time for the federal government to follow Wyoming’s lead in passing a regulatory framework for digital assets,” she wrote. “I have been working for the past four years to bring digital assets into our financial system, and I am confident that President Trump’s win along with a Republican majority in the Senate will pave the way for my comprehensive framework, the Lummis-Gillibrand Responsible Financial Innovation Act to become law.
“Without regulatory clarity at the federal level, many Wyoming institutions including special purpose depository institutions lack the ability to operate. For our nation to continue being the global financial leader we must pass a regulatory framework that protects consumers while encouraging innovation.”
Renée Jean can be reached at renee@cowboystatedaily.com.
