Category: Working Group

Beyond Merit: How the SEC’s Division of Investment Management Blocked Permissible Investments in Digital Assets

by Neil Humphrey

The Digital Chamber Continues its Efforts to Shine a Light on the SEC’s Unfair Practices Towards the Digital Asset Industry  

For over a decade, the SEC has imposed shifting, inconsistent, and often baseless regulatory roadblocks against digital asset innovation. Time and again, its actions have been driven not by clear legal standards but by subjective policy preferences, effectively acting as a merit regulator rather than an impartial enforcer of the law. 

Its resistance to digital assets has been met with mounting legal challenges, growing frustration from market participants, and, ultimately, a historic course correction, but only after investors were forced to miss out on significant opportunities. 

The Crypto Conundrum: A History of Unfair Bitcoin ETF Denials 

In 2022, The Digital Chamber published The Crypto Conundrum: Why Won’t the SEC Approve a Bitcoin ETF?, detailing how the SEC’s Division of Trading and Markets consistently denied applications for exchange-traded funds (ETFs) that applications that had sought to allow the listing and trading of exchange-traded funds (ETFs) that directly held bitcoin. 

The Crypto Conundrum argued that the continual denials were based not on objective and dispassionate application of law and precedent, but rather on policy judgments made by the SEC’s staff regarding digital assets. Put more concisely, the agency wasn’t just enforcing regulations: it was acting as a merit regulator, arbitrarily picking winners and losers in the marketplace. 

This position was resoundingly vindicated less than a year after the publication of The Crypto Conundrum when the D.C. Circuit Court of Appeals unanimously decided that the SEC’s denial of a Bitcoin ETF application constituted “arbitrary and capricious” behavior and a violation of the Administrative Procedures Act.   

The result? The opinion paved the way for the approval of eleven Bitcoin ETFs in 2024 in what would turn out to be the most successful ETF launch in history. 

Beyond Merit: The SEC’s Investment Management Division and Digital Assets 

While The Crypto Conundrum focused on the SEC’s Division of Trading and Markets, TDC’s latest report, Beyond Merit: How the SEC’s Division of Investment Management Blocked Permissible Investments in Digital Assets, shifts the spotlight to the Division of Investment Management, the division responsible for regulating investment companies and advisors. 

Based on interviews with numerous issuers, this report details the vast lengths to which the Division of Investment Management has gone to prevent registered investment companies from providing meaningful exposure to bitcoin and other digital assets. Instead of following clear legal guidance, the SEC imposed constantly shifting standards with no basis in rule, statute, or law: Once again, acting as a merit regulator rather than an unbiased enforcer. 

This isn’t a story about any one administration or SEC chair. The report explicitly rejects any notion that the SEC’s inappropriate treatment of digital assets can be laid at the feet of a particular political party, administration, or individual.  

Dating back nearly a decade, the first anecdote recounted in this report occurred in 2015 when Barack Obama was President and Mary Jo White was the SEC Chair. The Dalia Blass Letter cited in the report was issued during Jay Clayton’s term as SEC Chair during Donald Trump’s first administration, and it was the Gary Gensler-led SEC that unsuccessfully litigated seeking to prevent the issuance of Bitcoin ETFs.  

This is a story of how the Division of Investment Management, over nearly a decade, has consistently operated beyond its mandate. It is not the actions of any one individual, but a pattern of regulatory overreach embedded within the division itself. 

Why it Matters 

In recent years, the SEC has increasingly faced accusations that it has been wandering into the “unbounded, dangerous territory of merit regulation,” as SEC Chairman Hester Peirce artfully described in 2020, and is one of the most common refrains heard by TDC members. 

Accordingly, TDC set out to chronicle and highlight such instances with the hope that shining a light on such behavior might encourage the SEC to return to the authorized path on which it was initially set. 

The report made the problem clear: The agency overstepped its mandate—as it relates to a registered investment company’s exposure to digital assets. The SEC had never encountered an asset quite like bitcoin before—one that is purely digital in nature—and perhaps feared that the average investor was swept up in a speculative fever over an asset class lacking a clear investment rationale. As the agency sought to indulge its impulse to save investors from themselves, it found very few tools at its disposal to effectuate its aims. This was by design, as seeking to save investors from themselves, is explicitly not what Congress intended for the SEC when it created the agency. Congress had considered and actively pivoted away from merit-based regulation. 

In its efforts to limit exposure to bitcoin and digital assets, the SEC took positions that lacked legal justification, fueling widespread disillusionment and accusations of regulatory bias. Yet, despite the agency’s attempts to stifle the market, bitcoin’s adoption and value only grew. In trying to “protect” investors, the SEC instead deprived them of missing out on the large gains such investors would have otherwise experienced. 

Time for Change 

As we enter 2025 and with the SEC set to enter a new chapter in its history, our report seeks to play a very small part in encouraging the SEC to return to the authorized path on which it was initially set. There will always be a new asset or company that inspires wonder on the part of investors and skepticism on the part of the SEC. It is our hope the SEC will learn from its experience with digital assets, and in the future, resist the siren song of merit regulation. 

Read the Full Report

The Digital Chamber Applauds SEC’s Rescission of SAB 121: A Milestone for Institutional Digital Asset Custody, Consumer Protection, and Fairness.

by Nicole Rankin

Washington, DC – January 23, 2025

The Digital Chamber (TDC) celebrates the Securities and Exchange Commission’s (SEC) decision, under the leadership of Acting Chair Uyeda, to rescind Staff Accounting Bulletin (SAB) 121. This marks a critical victory for the digital asset industry and institutional custody solutions, and we are proud of the pivotal role we played in achieving this outcome.

In 2024, TDC led legislative efforts to nullify SAB 121, championing H.R. Res. 109 – the first piece of digital asset legislation to pass both the U.S. House of Representatives and the Senate. While the resolution was ultimately vetoed by President Biden last year, the overwhelming bipartisan support underscored the urgency and importance of creating a balanced and partial regulatory environment for digital assets. Today’s announcement is a testament to the momentum and the progress achievable through industry collaboration and advocacy.

The repeal of SAB 121 was a cornerstone of TDC’s 2025 SEC Digital Asset Policy Priorities, and we are encouraged to see progress being made so early in the year. This action marks a significant step forward in removing barriers to digital asset adoption, while providing much-needed clarity and opportunity for institutional investors to confidently engage in the digital asset space.

We commend Acting Chair Uyeda, Commissioner Hester Peirce, and the newly created SEC Crypto Task Force for their commitment to driving responsible digital asset innovation. TDC looks forward to continuing our collaboration with these leaders to ensure that the United States remains at the forefront of digital asset policy and innovation.

For more details, visit the SEC’s announcement here.

Starting the New Year Right – Time to Reset the Relationship between the SEC and the Global Digital Asset Industry and Build a Mutual Culture of Trust

by Neil Humphrey

As the U.S. gears up for President-elect Donald Trump’s incoming, crypto-friendly administration, the Securities and Exchange Commission (SEC) has the opportunity to reset its historically troubled relationship with the global digital asset industry and launch an era of transparency, cooperation, and well-reasoned regulation to bring much-needed clarity to digital asset market participants.  We need to foster a culture of mutual trust – where the digital asset industry can have confidence in the SEC’s intentions, and the SEC can recognize that most digital asset participants are striving to operate responsibly. 

President-elect Trump’s nominee for SEC Chair, Paul Atkins — a seasoned SEC veteran and member of The Digital Chamber’s advisory board — alongside Commissioners Peirce and Uyeda, both outspoken critics of the SEC’s anti-digital asset agenda in recent years, are ideally positioned to assess the agency’s actions across it’s divisions and offices. Together, we’re confident they can identify the problematic practices that have stymied the growth and innovation of digital asset market participants in so many ways.

It is not just time to end the “policy” of regulation by enforcement, but also to clear the decks of outdated and confusing former director and staff level speeches, letters and other informal and non-binding “guidance” that make it nearly impossible for current market participants to understand how to comply with the SEC’s rules and regulations. Finally, it is time for sensible and clear Commission statements, no-action letters, and bespoke rulemaking for the digital asset industry. 

What’s Happening

TDC’s Token Alliance Leadership Committee is taking a proactive role in framing out an agenda for the SEC’s new Chair and Commission majority by offering a list of policy priorities designed to start the process of rebuilding trust with the global digital asset community. This week, members of the Token Alliance Leadership Committee met with the staff of SEC Commissioners Hester Peirce and Mark Uyeda to present our 2025 SEC Digital Asset Policy Priorities, which include:

  • A timeline for action beginning on Day 1 to Day 90 of the new administration;
  • A detailed list of critical and important policy priorities set out by division that should be addressed along that timeline.

We were very pleased by the openness of the dialogue during this meeting and a willingness for ongoing input and look forward to continuing to inform and engage with the SEC on these priorities.

if you have any questions, please reach out to Policy@digitalchamber.org

Congratulations to Paul Atkins: Championing Innovation as SEC Chairman Nominee

by Nicole Rankin

We are delighted to congratulate our esteemed Board Advisor, Paul Atkins, on his nomination as Chairman of the U.S. Securities and Exchange Commission.

Mr. Atkins has been a pivotal ally in advancing our mission to develop robust, orderly, and fair digital asset markets. His dedication, insight, and leadership have been instrumental in shaping our efforts and vision for the future of the industry.

Mr. Atkins is the ideal choice to support President-elect Trump’s bold vision of establishing the United States as the global leader in digital asset innovation. We are confident his expertise and commitment will help pave the way for a thriving and forward-looking regulatory environment.

If you have any questions, please reach out to Policy@digitalchamber.org

Cybersecurity, Critical Infrastructure and Blockchain Solutions

by Neil Humphrey

The Problem: 

U.S. critical infrastructure—like transportation, communication, health, water, and energy—is the backbone of the country’s economy. Yet, it remains increasingly vulnerable to cybersecurity disruptions from adversaries. 

Furthermore, FBI Director Christopher Wray warned earlier this year that “China’s hackers are targeting American civilian critical infrastructure, pre-positioning to cause real-world harm to American citizens and communities in the event of conflict.”1 China is only one of several nation-states undermining U.S. cyber defenses, but Chinese advanced persistent threats (APTs) consistently rank among the most capable and intrusive. In December 2023, U.S. investigators discovered that hackers known as Volt Typhoon, affiliated with the Chinese People’s Liberation Army, had launched cyberattacks against government offices and infrastructure. These attacks aimed to gather intelligence, monitor citizens, and prepare to disable or degrade systems’ performance in future operations targeting the U.S. and its partners. Evidence suggests these APTs may have been active within U.S. networks since 2019. 

Most recently, hackers breached the networks of the largest water utility company in the U.S. that provides drinking and wastewater services to more than 14 million people in 14 states and 18 military installations.2 One can only imagine how our adversaries could exacerbate national emergencies and disasters by degrading these critical systems in times of greatest need and vulnerability. 

The Solution: 

Blockchain technology can help mitigate some of these risks; they are inherently secure, and offer several key advantages that can bolster American cybersecurity capabilities: 

  • Decentralization – Unlike traditionally centralized databases, blockchains operate on a distributed network of nodes. This decentralized architecture eliminates single points of failure, making it significantly more challenging for attackers to disrupt or compromise the entire network. 
  • Immutable Ledgers – Blockchain employs cryptographic hash functions to secure transactions. Each block in the chain contains a hash of the previous block, creating a cryptographic linkage that ensures immutability. This property ensures a permanent, auditable record that is highly resistant to tampering. This is especially important in cybersecurity, where edges and nodes in a network can hold and communicate threat profiles and defensive resources more efficiently than regular, distributed updates pushed out by centralized entities.
  • Enhanced Transparency and Trust – A blockchain is a distributed, shared ledger where all participants can observe and verify transactions, fostering trust and facilitating identification and mitigation of anomalies or fraudulent activity. 
     

What is to be done? 

U.S. allies and adversaries have either developed or are currently developing robust and progressive national blockchain strategies to leverage the high security, high fidelity, and low latency the technology offers. The U.S. government has consistently acknowledged the importance of blockchain technology and the need for policy development to support its secure deployment. For instance, the National Institute of Standards and Technology (NIST) Cybersecurity Framework highlights the importance of incorporating blockchain into cybersecurity strategies.3 Additionally, Executive Order 14028, Improving the Nation’s Cybersecurity, underscores the need for enhanced cybersecurity measures and encourages the exploration of blockchain technologies to strengthen the nation’s cybersecurity posture. 

However, many U.S. policymakers have ignored the seriousness of the threat posed in cyberspace and the possibilities of blockchain to mitigate those threats.  

The Digital Chamber (TDC) recommends that the U.S. government engage the blockchain industry and support its holistic development via an increase in strategic investment and research through agencies like the National Science Foundation, In-Q-Tel, Defense Advanced Research Projects Agency (DARPA), NIST, the Department of Homeland Security, the Department of Defense, and others. 

It is vital for U.S. national security interests to lead in advanced computing and blockchain innovation, to ensure networks are safe, information remains secure, and the U.S. can respond effectively to emerging threats. 

If you have any questions, please reach out to Policy@digitalchamber.org.

The Digital Chamber Announces Strategic Partnership with Stablecoin Standard

by Neil Humphrey

The Digital Chamber is excited to announce its strategic partnership with Stablecoin Standard, an organization renowned for its international leadership in promoting transparency, stability, and innovation in the stablecoin ecosystem.  This partnership promotes joint efforts to shape a robust regulatory framework for stablecoins and enhance their adoption across global financial systems. 

The partnership between The Digital Chamber and Stablecoin Standard will focus on several key areas: 

  • Amplifying the Stablecoin Standard’s best practices and frameworks for stablecoin issuance and management. 
  • Engaging with policymakers in the U.S. and abroad to create a balanced regulatory environment. 
  • Educating global stakeholders on the benefits and risks associated with stablecoin use. 

Cody Carbone, President of The Digital Chamber, expressed his enthusiasm about the collaboration: 

“Stablecoins are inherently global, and to drive worldwide adoption of payment stablecoins, we need partners with a deep understanding of international markets. Stablecoin Standard’s proven excellence in navigating complex regulatory landscapes abroad is an invaluable asset. Together, we can ensure that USD-backed stablecoins thrive not just in the U.S. but across global financial systems, bringing stability and efficiency to cross-border transactions.” 

Stablecoin Standard’s leadership also highlighted the importance of this partnership in driving forward-thinking solutions for the stablecoin industry. 

“Stablecoin Standard is thrilled to announce this partnership as we advance our mission to promote responsible innovation. Our collaboration with the Digital Chamber, including active participation in the Stablecoin Working Group, marks a strategic step toward building a resilient and transparent global stablecoin market.” – Beth Haddock, Global Policy Lead for Stablecoin Standard. 

This collaboration underscores The Digital Chamber’s commitment to advancing blockchain technology and digital asset innovation, providing a platform for dialogue between the private sector and regulators.   

How Stablecoins Can Strengthen U.S. Dollar Dominance  

by Nicole Rankin

Stablecoins are not just the future of finance—they’re the key to maintaining the U.S. dollar as the world’s leading reserve currency. Once viewed as a tool exclusively for crypto asset trading, stablecoins are redefining global finance by unlocking financial well-being and freedom for a growing, global user base.   

As stablecoin use cases expand beyond facilitating crypto trading to supporting cross-border payments, trade settlement, remittances, payroll, and even enabling access to high-yield financial products—they create new opportunities for users to interact with U.S. dollars, digitally. What was once viewed as a niche financial tool, stablecoins are gradually opening up new, non-crypto-related economic opportunities for users in far-away markets through increased access to dollar-denominated digital payment rails.  

What Are Stablecoins?  

While there is no universally agreed legal or regulatory definition of stablecoin, a ‘stablecoin’ is generally viewed as a type of digital asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets. Currently, there are more than $170 billion worth of stablecoins are in circulation today, and a whopping 98 percent of those are linked to the U.S. dollar. Unlike other cryptocurrencies, stablecoins offer price stability, making them an appealing alternative to traditional financial systems. But beyond their importance in protecting crypto asset traders from wild price swings in the underlying cryptocurrency, the utility of stablecoins is increasingly evolving to meet growing demand and preference, particularly from emerging markets, for dollar-denominated financial services.   

Why This Matters  

One of the defining characteristics of stablecoins is their borderless nature. The ability to enable faster, cheaper, and more inclusive financial transactions and services make stablecoins an indispensable tool for the millions of people underserved by traditional financial markets. Given user preference for dollar-denominated financial services, USD-linked stablecoins are a critical tool to extend the global dominance of the U.S. dollar, expand dollar access to new markets, and protect our national security interests at a time of heightened geopolitical instability. As the stablecoin market expands, U.S. policymakers have a unique opportunity to strengthen the dollar’s position on the global stage, extend U.S. financial influence, and protect against the development and scaling of adversarial payment systems.  

The Urgent Need for Stablecoin Policies  

Despite the promise of USD-linked stablecoins, the U.S. has yet to implement a regulatory framework that fully capitalizes on this opportunity. This regulatory gap could leave an open door for other countries to develop their own stablecoin frameworks, potentially diminishing the dollar’s influence in the process.  

Lawmakers must act now to ensure the U.S. remains at the forefront of this digital financial revolution. In our new report, How Stablecoins are Extending U.S. Dollar Dominance: A Policymaker’s Guide to Action, we provide policy recommendations that can help guide U.S. lawmakers in creating a comprehensive framework to secure the dollar’s influence and leadership in the digital age.  

The time for action is now.   

Download The Essential Guide

If you have any questions, please reach out to policy@digitalchamber.org

Advocating for Fair Value: TDC Sends Letter to the International Accounting Standards Board/IFRS Foundation

by Cody Carbone

The Digital Chamber’s Accounting Initiative took a significant step in advocating for clearer financial reporting standards by submitting a formal letter to the International Accounting Standards Board (IASB). Our letter calls for the adoption of Fair Value accounting standards for digital assets, aiming to provide greater transparency and consistency in global financial reporting. With the rapid evolution of the digital economy, it’s crucial that accounting practices reflect the true market dynamics of assets like Bitcoin and Ethereum.

We look forward to engaging with the IASB and other stakeholders to drive this important initiative forward.

Sen. Hagerty Releases Clarity for Payment Stablecoin Act Discussion Draft

by Neil Humphrey

We applaud Senator Hagerty for his leadership in introducing the Senate version of the Clarity for Payment Stablecoins Act. With the stablecoin market now reaching a market capitalization of $173.35 billion[1], the absence of a clear regulatory framework has held back its full potential. The Clarity for Payment Stablecoins Act is a crucial step forward, providing the regulatory certainty that will allow USD-backed stablecoins to thrive in a safe, predictable environment –empowering both innovators and consumers.

“Stablecoin regulation is no longer just an option—it’s a necessity that’s been overdue for too long. Federal Reserve Chair Powell, Treasury Secretary Yellen, and Deputy Treasury Secretary Adeyemo, to name a few, have all repeatedly called for Congress to provide clear guidelines, and we’ve reached a point where the lack of action is holding back progress. Senator Hagerty’s bill builds on previous efforts and provides the regulatory clarity that the market has long been waiting for. It’s time to move forward, not with hesitation, but with the urgency that this moment demands. We simply cannot afford to let this slip any further,” said Cody Carbone, President of The Digital Chamber

While there are key differences between this proposal and the House companion legislation, led by House Financial Services Committee Chairman Patrick McHenry, both bills share a key strength: preserving the option for state regulation of stablecoin issuers. This flexibility is vital for fostering innovation without compromising regulatory consistency or consumer protection, providing issuers with the certainty they need to operate under federal or state regulation and ensuring that stablecoins can thrive within a robust regulatory framework.  

The Digital Chamber Condemns SEC’s Overreach in Issuing Wells Notice to OpenSea

by Neil Humphrey

The Digital Chamber (TDC) unequivocally condemns the SEC’s latest overreach in issuing a Wells notice to OpenSea. The notice, which alleges that NFTs listed and sold on the platform are securities, represents a significant and troubling expansion of the SEC’s enforcement actions into the digital economy.

TDC has consistently advocated that certain NFTs, particularly those representing consumer products, are not securities nor financial products and should be outside of the SEC’s jurisdiction.[1]

The SEC’s current approach of regulating by enforcement, as evidenced by this Wells Notice, threatens to stifle innovation, disrupt vibrant markets, and undermine the economic opportunities that NFTs provide to creators and entrepreneurs.

We strongly urge the SEC to reconsider this enforcement-driven strategy and instead work collaboratively with Congress to develop clear and fair regulations that support innovation while protecting consumers. It is essential that regulatory efforts foster the growth of emerging technologies and creative industries rather than hinder them.

TDC remains committed to advocating for a regulatory environment that encourages innovation and secures the future of the digital economy without compromising investor protections. For more information on our efforts and the NFT Working Group visit here.

[1] Read our response to Commissioner Peirce and Uyeda following their dissent in the Stoner Cats case here.