President’s Working Group on Digital Asset Markets releases its report: Strengthening American Leadership in Digital Financial Technology

On the heels of Executive Order 14178¹, the President’s Working Group on Digital Asset Markets (Working Group) has released its comprehensive report, “Strengthening American Leadership in Digital Financial Technology” (the Report²). This landmark document sets forth the federal government’s vision for fostering responsible innovation for digital assets, blockchain and related technologies while protecting consumer rights and ensuring the global competitiveness of US digital asset markets. For participants in the crypto industry—including exchanges, custodians, developers, investors, financial institutions and fintechs—the Report provides not only a detailed road map of forthcoming legislative and regulatory priorities but also key insights into the evolving expectations for compliance, risk management and market structure. As the regulatory environment shifts from uncertainty to a more technology-neutral, pro-innovation framework, industry stakeholders must understand both the opportunities and obligations that will define the next chapter of digital financial services in America.

The Report outlines legislative and regulatory recommendations in five areas: (1) digital asset market structure, (2) banking and digital assets, (3) stablecoins and payments, (4) countering illicit finance, and (5) taxation. We address each below. 

MARKET STRUCTURE

Regarding establishing a statutory digital asset market structure, the Report provides a common taxonomy of digital asset terms and separates the asset class into three categories: security tokens, commodity tokens and tokens for commercial and consumer use (i.e., providing access to some specific goods, service or privilege). The Report states that security tokens (or security digital assets) should be regulated by the Securities and Exchange Commission (SEC), commodity tokens should be regulated by the Commodity Futures Trading Commission (CFTC) and commercial and consumer use tokens should be regulated under other federal and state laws applicable to commercial transactions.

The Working Group also notes its support for the CLARITY Act³ passed in the House and encourages Congress to consider a handful of additional factors when finalizing the legislation. For example, the CFTC should have authority over spot markets for non-security digital assets. SEC and CFTC registrants should be able to operate multiple business lines under an efficient licensing structure, ensuring straightforward regulation. Congress should expressly preempt state law for SEC- and CFTC-registered intermediaries regarding securities and commodities regulations, including state virtual currency, “blue sky” and commodity broker laws. In the interim, however, the Report outlines various recommendations that the SEC and CFTC should undertake with their current authority.

The Working Group envisions a new world for trading digital assets, noting that “[t]rading is the most common activity in the digital asset ecosystem.”[1] For digital assets that are securities, the Report calls on the SEC to take numerous steps immediately to tailor the regulation of the offering and trading of security digital assets to make US markets the most liquid in the world. These recommendations are premised on the idea that existing regulations for listing and trading traditional types of securities are not suited for the particular characteristics of digital assets. These recommendations include:

• establishing a fit-for-purpose exemption from registration under Section 5 of the Securities Act⁴ for securities distributions involving digital assets
• establishing a safe harbor for certain airdrops from characterization as “sales” under Section 2(a)(3) of the Securities Act or an exemption from the corresponding registration requirements under Section 5 of the Securities Act
• permitting certain decentralized finance (DeFi) service providers to operate without registration as broker-dealers, exchanges or clearing agencies
• enabling non-security digital assets that are tied to an investment contract to be traded immediately post-distribution on non-SEC-registered trading platforms
• amending SEC Regulation ATS or otherwise making it possible for non-securities digital assets to trade alongside traditional securities
• creating an exemption under the Securities Exchange Act of 1934 that works for innovators experimenting with new business models (an innovation exemption)
• considering steps to accommodate the tokenization of National Market System (NMS) securities and permit trading of non-securities digital assets along with NMS securities
• considering whether self-hosted wallet providers need to be registered as broker-dealers

The Report further recommends that the SEC consider using its rulemaking and exemptive authority under the Investment Advisers Act of 1940, as amended (Advisers Act), the Investment Company Act of 1940, as amended (1940 Act), and other applicable laws to:

1. provide clarity on the custody of digital assets that are securities for registered investment companies and registered investment advisers by updating the rules under Section 17(f) of the 1940 Act and Rule 206(4)-2 under the Advisers Act
2. evaluate whether certain state-chartered trusts should be deemed “qualified custodians” as defined in Rule 206(4)-2(a)(6) under the Advisers Act or a “bank” under the 1940 Act

In a July 31 speech before the America First Policy Institute, SEC Chairman Paul Atkins addressed each recommendation⁵. Chairman Atkins stated that the SEC would be launching “Project Crypto” and that he was directing the SEC’s policy divisions to work with the SEC’s Crypto Task Force to swiftly develop proposals to implement the Report’s recommendations. He stated that he had directed the staff to consider how best to adapt the existing regime, which was created without crypto assets in mind, to facilitate the custody of crypto assets. In addition to considering amendments to the custody rules, Chairman Atkins announced that he was directing the SEC staff to consider possible exemptive or other relief.

For digital assets that are commodities, the Report calls for the CFTC to take similar steps to create a clear regulatory framework to enable and facilitate robust trading of digital asset commodities and derivatives contracts thereon. While the CFTC at present has only antifraud and antimanipulation oversight jurisdiction over spot transactions in commodities (including for digital asset commodities), it has broad jurisdiction over derivatives on such commodities. For that reason, the Report’s recommendations for the CFTC are predominantly focused on how the CFTC may facilitate derivatives markets with respect to digital asset commodities, including:

• providing guidance as to how digital assets may be considered commodities under the Commodity Exchange Act⁶
• updating its rules and guidance on the extent to which digital assets investment vehicles may be considered commodity pools and to which asset managers or other market intermediaries may be required to register with the CFTC
• clarifying for registered intermediaries the application of existing CFTC obligations with respect to digital asset commodities derivatives transactions
• providing guidance on the application of CFTC regulations to the acceptance and holding of different forms of digital assets as collateral
• providing guidance on the applicability of various CFTC requirements to DeFi activities, smart contract protocols or decentralized autonomous organizations
• permitting firms to provide multiple services within a single user interface, such as bundled trading and custody services, or bundled exchange and broker services
• considering how existing rules can be amended to enable the use of blockchain-based derivatives transactions

The Report further addresses developing fit-for-purpose disclosure requirements that are appropriately tailored to address the novel characteristics of digital assets and blockchain technology. Digital asset trading platforms, and other intermediaries as appropriate, should publish the criteria that govern the listing of digital assets that are traded. In addition, digital asset trading platforms, and other intermediaries as appropriate, should consider prominently disclosing features that may be unique to digital assets, such as token economics (i.e., allocation percentages and rationales) and source code, if applicable.

To create a lasting framework for digital asset commodities, however, the Report notes that Congress should grant clear authority to the CFTC to regulate spot markets in digital asset commodities. Additionally, the Report encourages coordination between the SEC and CFTC to ensure a clear and simple regulatory framework for digital asset market activities, particularly with respect to registration and compliance obligations for market participants that engage in activities involving both digital asset securities and digital asset commodities (e.g., a “Super App,” as Chairman Atkins has coined).

BANKING AND STABLECOINS

Digital assets and banking have become increasingly intertwined as banks expand their services to digital asset firms and explore innovations in blockchain technology. The intersection of these sectors has been notably shaped by past regulatory approaches—specifically, the impact of “Operation Choke Point 2.0” during the Biden administration, which resulted in widespread “debanking” of crypto firms and discouraged banks from engaging in digital asset activities. In contrast, bank regulators under the Trump administration have taken steps to reverse these restrictive policies by rescinding prior guidance that had the effect of dissuading banks from engaging in digital asset activities and by reaffirming the legal permissibility of such activities. This year, the three primary federal banking agencies (the Office of the Comptroller of Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Board of Governors of the Federal Reserve System (FRB)) withdrew earlier guidance cautioning banks from engaging in digital asset activity and issued a joint statement⁷ confirming that banks can engage in custody of digital assets. In addition, on July 18, President Trump signed into law the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), which establishes regulatory clarity and a licensing regime for issuers of payment stablecoins.

These policy shifts underscore an evolving regulatory environment, aiming to foster greater clarity and encourage responsible bank participation and innovation in the digital asset ecosystem, and this sentiment is echoed throughout the Report.

The Report describes how digital assets (including crypto and tokenization) are used in the banking and payments industries, including digital asset custody, DeFi, tokenized deposits and quicker and more cross-border and real-time payments, and advocates that innovation in digital assets (and payment stablecoins in particular) will be important to maintain the US dollar as the leading global currency. The Report includes a number of recommendations for the federal banking agencies—the OCC, FDIC and FRB—to adopt guidance and regulations that encourage banks to engage in digital asset activities, such as:

• clarifying permissible activities and supervisory expectations
• providing additional guidance on:
  • custody best practices
  • use of third parties
  • holding stablecoin reserves
  • principal activities (e.g., holding digital assets on balance sheet)
  • participation in pilots and experiments
  • tokenization and use of permissionless blockchains
• encouraging innovation by state-chartered banks and rescinding restrictive FRB policy guidance
• developing risk-based, principles-based guidance for banks and supervisors, including engagement with NIST and other standards bodies
• ensuring technology-neutral supervision and removing “reputation risk” as a basis for supervisory criticism⁸
• clarifying and streamlining the process for obtaining charters and master accounts with transparency on timelines and outcomes
• advocating for capital requirements that accurately reflect the risk of digital asset activities and pushing for international standards that do not disadvantage US banks

Regarding stablecoins and digital payments, the Report encourages the various federal agencies to expeditiously implement the GENIUS Act, which was signed into law on July 18. But even though the agencies are expected to act quickly, crypto and digital asset participants are unlikely to see significant impacts of implementation until next year.

While the Report advocates for innovation with digital assets in the banking and payments industries, it comes out strongly against any support for central bank digital currencies (CBDCs). The Report calls for legislation prohibiting the adoption of a CBDC in the United States and generally recommends prohibiting any action establishing or promoting CBDCs in the United States or abroad. 

COUNTERING ILLICIT FINANCE

The Report acknowledges the importance of improving anti-money laundering and countering the financing of terrorism (AML/CFT) and sanctions frameworks to mitigate the risk of bad actors utilizing digital finance technologies to engage in illicit activity or conduct that adversely affects national security. The Working Group supports a comprehensive review of AML/CFT measures to ensure that the financial system is not used for illicit finance, without impeding digital asset use and innovation by law-abiding Americans. To that end, the Report extensively discusses actions already taken and recommendations for future measures to mitigate AML/CFT and sanctions risks.

The Working Group highlights steps already taken by Congress, the US Department of Justice (DOJ), the US Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC) and other government agencies to bolster AML/CFT and sanctions controls and establish clarity for market participants. For example, the Report noted:

• Congress’ clarification of AML/CFT obligations related to payment stablecoins when it passed the GENIUS Act in July 2025
• The DOJ’s commitment not to engage in “regulation by prosecution in the digital assets space” and its disbandment of the National Cryptocurrency Enforcement Team; according to the Working Group, the DOJ will “focus on prosecuting individuals who victimize digital asset investors or use digital assets in furtherance of criminal offenses” with the goal of allowing US citizens and businesses “to own digital assets and use blockchain technologies for lawful purposes without fear of prosecution”
• FinCEN’s withdrawal of two notices of proposed rulemaking related to digital assets issued in fall 2020—(i) Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets (the unhosted wallet rule)⁹ and (ii) Threshold for the Requirement To Collect, Retain, and Transmit Information on Funds Transfers and Transmittals of Funds That Begin or End Outside the United States, and Clarification of the Requirement To Collect, Retain, and Transmit Information on Transactions Involving Convertible Virtual Currencies and Digital Assets With Legal Tender Status¹⁰

The Report also makes numerous recommendations to Congress, the DOJ, FinCEN, OFAC and other government agencies that, if adopted, would help prevent bad actors from using digital assets for financial crime, mitigate AML/CFT and sanctions risks inherent to these technologies, and provide clarity to market participants.

For example, the Report recommends that Congress consider:

• amending the Bank Secrecy Act (BSA) to clarify its application (i) to the digital asset ecosystem, including by establishing specific digital asset subtypes of financial institutions within the BSA framework and creating obligations for payment stablecoin issuers to share reports with law enforcement and freeze and seize assets used for illicit purposes, and (ii) to foreign-located actors whose conduct may affect the United States
• enacting legislation regarding self-custodial wallets that addresses how control over such assets intersects with the BSA (taking into consideration the importance of allowing US persons to lawfully hold and maintain custody of their own digital assets and to engage in lawful transactions)
• enacting legislation codifying which portions of the DeFi ecosystem, if any, should be subject to the BSA and identifying which entities are best positioned to mitigate illicit finance risk in the DeFi ecosystem
• providing additional tools enabling Treasury “to target foreign digital asset exchanges or digital asset transactions involving criminal or state actors—without regard to the nature of their illicit activity”

The Report also urges FinCEN, OFAC and other government entities to provide additional clarity around expectations for how those engaging with digital assets can comply with the BSA and effectively mitigate AML/CFT and sanctions risks. For example, the Report encourages:

• FinCEN to consider whether and how its existing guidance to the digital asset sector¹¹ addressing when and how a business engaged in money transmission must comply with the BSA should be updated
• OFAC to similarly consider updating its existing Sanctions Compliance Guidance for the Virtual Currency Industry¹²
• Treasury to issue a request for information from industry participants to strengthen collaboration with those operating in the digital asset space
• Banking and financial institution supervisors, such as the OCC, to provide clear guidance regarding AML/CFT expectations for digital assets and eliminate areas of uncertainty for traditional financial institutions interested in participating in the digital asset ecosystem 
• Treasury to consider modernizing Suspicious Activity Report reporting to ensure it obtains useful information about the involvement of digital assets in suspicious activity
• Treasury to issue a request for information from industry participants to strengthen collaboration with those operating in the digital asset space

Finally, the Working Group recommends improving the public-private partnership to fight financial crime. The Report suggests enabling digital asset firms to temporarily freeze assets while investigating potential illegal activity by enacting “hold laws” that offer safe harbors for such asset freezes and promoting information sharing without infringing on the privacy rights of digital asset holders. 

TAXATION

Chapter VII of the Report reviews existing guidance relating to the taxation of digital assets and associated information reporting and identifies priority items for the publication of guidance, along with priority legislative recommendations directed toward Congress, Treasury and the Internal Revenue Service (IRS).

The Report concludes that current IRS guidance on the taxation of digital assets is limited. While the IRS has concluded that virtual currency is treated as property for US federal income tax purposes in Notice 2014-21, and additional notices have addressed hard forks, staking and non-fungible tokens (NFTs), there are many areas of uncertainty with respect to transactions involving digital assets.

The Report identifies instances where the current law applicable to the taxation of digital assets is unclear. In certain instances, the Report recommends enacting specific changes to laws or regulations, but in other instances, the Report merely identifies areas that need guidance and defers to Congress, Treasury or the IRS as to how to resolve the uncertainty. The Report covers various areas of tax law, including (i) the taxation of security tokens and commodity tokens, (ii) the taxation of stablecoins, and (iii) tax information reporting.

Characterization of Digital Assets for Tax Purposes

As noted above, IRS notices characterize virtual currency as property, not currency. IRS guidance does not address whether such property is a “security” or “commodity” for tax purposes (the criteria for which differ from the securities law meaning of the term “security”). The characterization of property as a security or commodity for tax purposes affects the application of a number of provisions of the Internal Revenue Code (the Code).

Rather than amend existing US federal income tax laws to include digital assets in the definition of “security” or “commodity,” the Report recommends that digital assets be treated as a new class of assets for US federal income tax purposes and that certain provisions of the Code that are currently applicable to securities or commodities be amended to apply to digital assets. Specifically, the Report recommends that the following provisions be amended to apply to digital assets: (i) Section 475 of the Code (mark-to-market accounting method for dealers in securities), (ii) Section 864(b) of the Code (US trade or business safe harbors with respect to trading in securities or commodities), (iii) Section 1058 of the Code (securities lending safe harbor), (iv) Section 7704 of the Code (publicly traded partnerships), (v) Section 1091 of the Code (wash sales rules), and (vi) Section 1259 of the Code (constructive sale rules).

Stablecoins

In light of the recent enactment of the GENIUS Act, the Report also provides several recommendations regarding the taxation of stablecoins. The Report notes that while the current US federal income tax classification of stablecoins is not clear, characterizing stablecoins as debt “seems most appropriate” where the stablecoin is structured to be used for payments and may be redeemed for cash, which the Report terms a “payment stablecoin.” Because of the unique features of payment stablecoins and their debt-like features, the Report generally suggests that legislation be enacted to exempt payment stablecoins from the wash sale rules and the anti-bearer bond rules, such as the registered form requirement under Section 163(f) of the Code. In the absence of such legislation, the Report encourages Treasury and the IRS to issue guidance clarifying the tax treatment of payment stablecoins and the application of the wash sale rules and anti-bearer bond rules to payment stablecoins.

Tax Reporting

The Report views current tax information reporting requirements with respect to digital assets as overly burdensome, especially in instances in which the value of digital assets transferred is lower than the cost of compliance, such as in situations where taxpayers delegate their rights to stake to others and receive frequent small rewards, where a taxpayer receives an unsolicited airdrop of a newly created digital asset as a marketing practice, or where the value of a digital asset is uncertain, such as after a hard fork. Under current law, taxpayers are required to include the fair market value of these assets in income when they have dominion and control over the asset.

To simplify reporting, the Report recommends that Treasury and the IRS (i) issue guidance to exempt de minimis receipts of digital assets from US federal income tax reporting requirements, such as the receipt of digital assets from airdrops, staking, hard forks and mining rewards, and (ii) review, modify or reverse existing guidance that requires that a taxpayer recognize income upon receipt of digital assets from staking and mining. The Report also notes that because many digital asset exchanges communicate with their customers solely electronically, Treasury and the IRS should propose regulations to provide these exchanges with a less burdensome method of obtaining customer consent to provide electronic payee statements, such as Form 1099-DA.

In addition, the Report suggests legislative changes to Section 6038D of the Code, which generally requires an individual to report holdings of certain specified foreign financial assets with an aggregate value of $50,000. The Report notes that this provision could be updated to require taxpayers to report digital assets and that reporting under this provision could be streamlined by conforming the information required to be reported under Section 6038D of the Code and the information required to be reported on the FBAR (the Report of Foreign Bank and Financial Accounts).

The Report also proposes implementing additional reporting requirements with respect to digital assets. For example, the Report recommends that Treasury and the IRS consider proposing regulations to implement the Crypto-Asset Reporting Framework , an Organisation for Economic Co-operation and Development initiative that generally provides for reporting of digital asset transactions and exchanging this information across jurisdictions. The Report also suggests requiring that basis information be reported when digital assets are transferred between centralized digital asset exchanges.

Other Issues

The Report also lists several other areas of uncertainty that should be clarified either through new legislation or by issuing additional administrative guidance. These include:

• with respect to the corporate alternative minimum tax, guidance addressing the determination of applicable financial statement income regarding the financial accounting for unrealized gains and losses on investment assets other than stock and partnership interests
• with respect to grantor trusts, guidance addressing whether a trust that otherwise qualifies as an investment trust treated as a grantor trust fails to qualify as such if the trust stakes digital assets owned by the trust
• guidance addressing whether wrapping transactions (converting a digital asset native to one blockchain into a digital asset native to a different blockchain) and unwrapping transactions are taxable
• guidance as to whether staking activity constitutes a US trade or business for purposes of Section 864 of the Code or gives rise to unrelated taxable business income for purposes of Section 512 of the Code
• guidance on how to value digital assets that are traded on multiple exchanges or are thinly traded, for purposes of determining amount realized and basis
• guidance on NFTs, such as whether NFTs are treated as collectibles for purposes of Sections 408(m) and 1(h)(5) of the Code
• guidance on the application of the investment company rules under Sections 351 and 721 of the Code to digital assets
• guidance on whether digital assets constitute “marketable securities” for purposes of Section 731 of the Code or “hot assets” for purposes of Section 751 of the Code
• guidance expanding the classes of assets that may be held by regulated investment companies to include digital assets
• guidance regarding the treatment of digital assets for purposes of Section 951 of the Code (subpart F), Section 951A of the Code (GILTI) and the passive foreign investment company (PFIC) rules

CONCLUSION

The Working Group’s digital asset road map signals a move toward clearer regulation for digital assets and blockchain in the United States. Federal agencies are expected to act quickly on the recommendations and implementation of the GENIUS Act, while Congress continues to work on legislation regarding market structure, taxes and anti-illicit finance. 

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