In a bombshell financial disclosure report released last week, Donald Trump revealed he brought in $1.4 billion from cryptocurrency ventures in the first year of his second term. A Reuters analysis last month found that, since the 2024 election, the Trump family generated more profit from crypto than any other crypto firm listed in the United States. While raking in this cash from the family business, Trump oversaw the passage of the GENIUS Act, unleashing barely regulated stablecoin onto the American financial system. And Congress, with the administration’s support, is currently working to pass the CLARITY Act, which would strip investor protections and hand over crypto regulation to an overmatched, historically ineffective agency under Trump’s control.
But there’s a problem for the president: Democrats have insisted that the CLARITY Act must contain an ethics provision designed to prevent conflicts of interest for top government officials, which would limit the amount Trump himself could profit off of crypto and thus the deregulatory framework in the law.
Luckily for Mr. Trump, he can have his cake and eat it too. In fact, that’s exactly what he’s been doing for the last year thanks to a joint initiative from the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). These are the two agencies with claims over crypto oversight; the CLARITY Act would move jurisdiction from the SEC to the CFTC, which has always been a light-touch regulator of the financial system. But it turns out the two are completely in cahoots, essentially abandoning their jurisdictional authority altogether. In that sense, the passage of the CLARITY Act wouldn’t lead to any meaningful changes in crypto oversight, at least for now.
SEC CHAIRMAN PAUL ATKINS ANNOUNCED “Project Crypto” last July in a speech to the America First Policy Institute, telling the crowd it would be “the SEC’s north star in aiding President Trump in his historic efforts to make America the ‘crypto capital of the world.’” Six months later, newly confirmed CFTC Chairman Mike Selig announced his agency would be joining the project. In the year since, Project Crypto has turned out to be less an initiative from two of the most important agencies regulating financial markets, and more a corrupt scheme to turn America into a free-for-all playground for crypto firms—and grow the Trump family’s billions in the process.
It’s no secret that the two regulators have an affinity for the digital asset industry. Atkins’s extensive ties to the crypto world include some $6 million in cryptocurrency assets; this was the subject of scrutiny during his confirmation. Selig was a corporate lawyer representing crypto firms before taking the helm at the CFTC. Many saw the appointments as a clear signal that Trump was getting serious about rewarding the industry after they funneled north of $130 million into his campaign and, perhaps more importantly for the president, began funneling money into his own pocket via his various crypto ventures.
The first thing the SEC and CFTC started doing was to dismiss ongoing Biden-era investigations and lawsuits against crypto firms. By an inexplicable coincidence, all of the firms seemed to have a significant monetary relationship with the president, often formed immediately before or after the cases were dropped.
Sen. Elizabeth Warren (D-MA), top Democrat on the Senate Banking Committee, summed up the most high-profile dismissals well in a February oversight hearing: “Kraken donated a million dollars [to Trump]. Case dismissed. Coinbase: a million dollars. Case dismissed. Gemini: donates a million dollars. Case dismissed. Binance and a UAE company gave the Trump family stablecoin a huge boost in a $2 billion deal. Case against Binance, dismissed.”
The SEC also petitioned to freeze a pending fraud lawsuit against Justin Sun, who purchased $75 million of a World Liberty Financial cryptocurrency and attended a White House dinner for the largest buyers of Trump’s meme coin. In March, they reached a settlement for $10 million paid by Sun’s company, which the crypto mogul said he was “very pleased” with.
The CFTC employed a nearly identical strategy. Before Selig was confirmed, acting chair Caroline Pham did everything in her power to purge the agency of officials who had previously pursued cases against crypto firms, while dismissing as many ongoing actions as she could. One example was KuCoin, which had agreed to pay a settlement to the CFTC under President Biden. While Pham and her attorneys renegotiated the settlement, KuCoin reached an agreement to sell two cryptocurrencies created by World Liberty Financial, bringing credibility and a larger customer base to the Trump venture. In the end, KuCoin’s parent company was fined only $500,000, a fraction of the expected penalty.
The CFTC has dropped several other Biden-era investigations against crypto firms and fast-tracked the approval of prediction markets, including one for an offshoot of Gemini, which backed Don Jr. and Eric Trump’s venture, American Bitcoin. Recently, the CFTC asked a judge to vacate a court order against Gemini requiring the firm to pay $5 million.
Unsurprisingly, the agencies haven’t made up for the terminated enforcement actions with any of their own. “SEC doesn’t really do crypto enforcement anymore,” and neither does the CFTC, professor Hilary Allen, who teaches securities regulation at the American University Washington College of Law, told the Prospect. Under the Trump administration, she said, “crypto enforcement is more or less a dead letter.”
The ability for crypto oligarchs to operate with impunity has turned out to be pretty lucrative, and for one family in particular. Much of the windfall from World Liberty Financial and Trump’s meme coin, $Trump, can be attributed to relaxed regulatory standards that, along with the stablecoin legislation Trump signed last year, gave the industry a boost and allowed Trump and his sons to sell security-like tokens sans federal oversight while funneling money directly from the pockets of investors into their own coffers.
THE NEXT STEP IN PROJECT CRYPTO was to clarify the lack of enforcement to the market, so no poor crypto company would be afraid of the potential consequences of operating outside the securities laws. In March, Atkins posed a question to a crowd of crypto enthusiasts at an event hosted by The Digital Chamber, a crypto lobbying group: “When does a crypto asset implicate the federal securities laws?” The answer, according to the SEC and CFTC: basically never.
In the speech, Atkins outlined a new “token taxonomy”: guidelines jointly published by both agencies establishing categories for crypto products that the agencies do not consider securities. Most cryptocurrencies fall under one of the four categories: digital assets, digital collectables, digital tools, and payment stablecoins.
The new token taxonomy officially places Trump’s most lucrative crypto ventures outside the scope of securities regulation. Governance tokens, which give holders voting rights over certain matters of governance—similar to, say, voting shares of corporate equity—generally fall into the digital commodity category. Sales of World Liberty Financial’s governance tokens alone netted the family $1.4 billion. The value has since collapsed, leaving investors holding the bag.
Trump’s meme coin, an asset traded entirely on internet hype and wild speculation, made the family hundreds of millions before the price collapsed to 3 percent of its peak, once again wiping out nearly one million regular investors convinced by the Trumps to buy in. According to the new guidelines, meme coins are “digital collectibles” and fall outside of the purview of both the SEC and CFTC.
“It is Atkins’s fealty to Trump and desire to impress him that drives these stupid crypto policies,” Corey Frayer, who was the senior adviser on crypto policy in the SEC under the Biden administration, told the Prospect.
Lax regulation doesn’t just hurt investors who buy directly into Trump’s schemes or other crypto frauds. The real danger, consumer advocates worry, is that the open-armed embrace from the administration and Congress will give the crypto industry the patina of legitimacy it needs to further entangle itself with the traditional financial system—or if crypto firms have their way, replace it entirely.
One possibility is that crypto firms themselves grow into massive financial conglomerates that act as an investment bank, a commercial bank, and a stock exchange all in one. Picture the New York Stock Exchange merging with JPMorgan Chase—a merger explicitly forbidden in traditional finance but permissible in digital markets.
In fact, 12 crypto firms (plus investment bank conglomerate Morgan Stanley) have filed for, and in most cases have received conditional approval for, national trust bank charters, which allow the entities to hold, manage, and become a custodian of digital assets for clients, bringing them closer to the activities of a traditional bank. One of those firms is World Liberty Financial, which filed for the charter in January. It’s unsurprisingly expected to receive it.
Simply purchasing the support of lawmakers and government officials won’t be enough to claim market dominance, at least for now. Crypto will also have to find a way to convince regular investors that their product is a better alternative than the traditional banks they seek to replace. A recent Politico poll found that only 9 percent of Americans would trust a major crypto platform with their money more than a traditional bank. Seventeen percent trust the two equally, and 47 percent are team traditional bank.
But the industry still has another play up their sleeve. Instead of selling their products directly to regular investors, crypto firms can sell to the institutions where those investors put their money. Much like in the run-up to 2008, it wasn’t retail investors purchasing complicated and risky financial instruments, explains Mark Hays, associate director for cryptocurrency and fintech at Americans for Financial Reform, but financial institutions that the rest of the country relied upon to keep their money safe.
That future is already happening. Since Trump took office, Goldman Sachs, JPMorgan Chase, and other top banks have been increasingly adding cryptocurrencies to their books and experimenting with blockchain-based products like crypto ETFs. And as we see with Morgan Stanley, some firms are even experimenting with holding digital assets themselves.
The increased adoption of cryptocurrencies into the mainstream financial system poses significant risks to the economy. “Cryptocurrencies are notoriously volatile,” Allen explains. “Most crypto assets are essentially [Ponzi schemes] with nothing behind them. For that reason their prices jump all over the place and they can go to zero very quickly.” On top of that, crypto exchanges are rife with high-leverage trades and borrowed money, which exacerbates losses in a crisis. Add to that the near complete lack of regulatory oversight, and things are starting to look real 2008-esque.
According to Frayer, there was another worry informing the approach to crypto under Gary Gensler, Biden’s SEC chair and before that the CFTC chair under Barack Obama. “Our fear was if you don’t enforce the securities laws, if you let people like crypto operate under a different set of rules,” Frayer said, the rest of the financial markets “will flow into the unregulated, unenforced dark market that’s being created.”
PAUL ATKINS CLEARLY DOES NOT SHARE that concern. Lest he leave out the unlucky few crypto assets that track traditional securities assets and are therefore considered securities under his token taxonomy, the SEC currently has an “innovation exemption” in the works. Tokenized stocks are by far the most common example: these securities, which rise and fall with stock prices, can be issued by the company to which the shares belong or by a third party with no relation to the company at all. They don’t even need to be backed by the real shares they’re tracking. These kinds of derivatives are a direct analogue to the bets made on mortgage-backed securities during the housing bubble, which magnified the collapse.
The innovation exemption would allow tokenized stocks and other similar crypto assets to skirt most of the SEC’s disclosure and investor protection requirements. And this exemption isn’t only for crypto firms. If an investment bank wants to avoid investor protection rules for its securities, for example, all it will have to do is move them “on-chain.”
Even some major players on Wall Street—who are rarely opposed to a good regulatory loophole—are skittish about the innovation exemption. The rule is on hold for now after pushback from the Securities Industry and Financial Markets Association, a powerful trade group, and other banking organizations that are worried that such an exemption would deteriorate trust in the markets. Still, crypto exchanges are expecting Atkins to do their bidding, as per usual, and are already preparing tokenized stock for when the time comes.
Despite its potentially disastrous consequences, Project Crypto is only a bridge, according to Atkins. What the crypto industry really wants is the CLARITY Act to codify the project’s rules and guidelines into law. Without CLARITY, a future administration could reverse course on much of Trump’s crypto enforcement and make it harder for the industry to operate outside the bounds of securities laws.
It will be a mad dash for crypto lobbyists as the Senate returns from its Fourth of July recess. Despite spending over $130 million in the 2024 midterms to buy support from this Congress, the CLARITY Act is still struggling. They only have a few weeks until the August recess and the unofficial start of election season, after which its future is uncertain.
The bill’s deregulatory provisions, pushing blockchain-based assets outside of the purview of any sufficient regulatory framework, aren’t causing issues in Congress. Several bank-friendly senators were hesitant about a provision allowing stablecoin issuers to offer “rewards” on their coins—in essence acting as deposit yields—after aggressive pushback from the banking industry. The weak anti–money laundering and –financial crimes protections in the bill also caused delays. Now, it’s the ethics language causing the biggest roadblock.
Crucial Senate Democrats won’t pass the bill if they can’t at least claim they tried to address conflict-of-interest concerns. But that’s a no-go for the president. After all, what’s the point of passing legislation that could put the entire financial system at risk to enrich your crypto bro friends if you can’t make billions off of it yourself?
