New Executive Orders Signal Changing Environment for Crypto

The new Trump administration took numerous actions in its first week, including an order directing the creation of a working group on Digital Asset Markets. The president’s other actions touch on numerous areas of the economy, including energy and trade. Crypto has not been a direct focus of these actions, but it will be impacted. So far, the new administration seems poised to move fast to halt harmful regulatory actions and engage with crypto firms moving forward. Here’s what we’re seeing.

Need For Speed

Many of the president’s first day orders sought to change the relationship between the White House and the federal agencies and their employees. These include an order aimed at making Career Senior Executive Service (SES) officials directly accountable to, and removable by, the president; an order reclassifying federal employees whose positions have a “policy-determining, policy-making or policy-advocating character” to make them removable; an order granting immediate security clearances for specified political appointees; and an order both establishing a Department of Government Efficiency (DOGE) and granting DOGE personnel “full and prompt access to all unclassified agency records, software systems, and IT systems.”

Taken together, these orders appear designed to make federal civil service employees directly answerable to the president and show a desire to move quickly. These orders could allow the president to remove or reassign senior personnel in financial regulatory agencies who are responsible for reviewing charters and registrations, issuing licenses, providing regulatory guidance and initiating enforcement actions when those actions are not consistent with White House directives. They also could be used as an incentive to forego or speed up processes that are notoriously slow at these agencies. As a result, we may begin to see a “move fast and break things” mindset, previously relegated to the tech sector, enter federal agencies.

Regulatory Freeze

As expected, the president issued an order freezing agency rulemaking actions. These actions include the industry-dreaded Safeguarding Proposal the SEC issued at the beginning of 2023 that would have significantly departed from prior asset management custody requirements by requiring all investment adviser client assets, rather than just “funds and securities,” be held with a qualified custodian “at all times.” These requirements appear, in part, directed at preventing crypto exchanges — which are usually not qualified custodians — from holding advisory client assets. This would have iced these firms out of the $128 trillion in capital managed by registered investment advisers.

The order also would pause the Consumer Financial Protection Bureau’s proposed interpretive rule. The rule would have interpreted the term “funds” under the Electronic Fund Transfer Act (EFTA) and Regulation E to include stablecoins, and “accounts” to include digital currency wallets, thereby subjecting crypto firms to the EFTA and Reg. E’s limitations on consumer liability for unauthorized transfers, disclosure, and investigation requirements. This could have imposed significant compliance costs on crypto firms already subject to fragmented, and often inconsistent, regulation.

Additionally, the order would pause proposed new rules by the Federal Deposit Insurance Company (FDIC) to require insured banks that have custodial deposit accounts with transactional features to maintain beneficial ownership records in a prescribed format to preserve access to deposit insurance. These rules were aimed at fintechs offering brokered deposits in the wake of the failure of Synapse Financial Technologies, Inc., in early 2024.

These and other proposed rulemakings are now on ice.

Seeking Accountability

The president also issued an order to end “the weaponization of the federal government.” The order, among other things, directs the Department of Justice (DOJ) to review the activities of federal agencies — including the DOJ, SEC and FTC — to identify instances over the past four years during which an agency’s conduct appears to have targeted political opponents. The order then directs DOJ to submit a report to the president with recommendations for appropriate remedial actions.

Among other targets, this order appears directed at the SEC’s campaign of regulation by enforcement against crypto firms and the FDIC’s Operation Chokepoint 2.0. It has been reported that the FDIC has been destroying documents potentially in anticipation of an action like this. It’s not clear what remedial actions would look like under the order, but crypto firms should at least anticipate public acknowledgement of the difficulties they’ve faced in recent years.

The Future

In recent years, U.S. crypto firms have been largely confined to offering payments products. While valuable, blockchain technology is general-purpose with significant potential to revolutionize financial products across securities, derivatives, asset management and banking. The opening salvo from the Trump administration indicates a willingness to move quickly, work with the crypto industry to launch products and offer meaningful regulatory guidance that has been missing up to this point. Paul Hastings Fintech lawyers are available to assist with the transition to Trump 2.0.