The Lawfare Podcast: Evolution and Future of Crypto Policy with Carla Reyes and Drew Hinkes

Released on March 11, 2025

In this episode of The Lawfare Podcast, hosted by Kevin Frazier, the discussion centers on the evolving landscape of cryptocurrency policy. Joining Frazier are Carla Reyes, Associate Professor of Law at SMU Dedman School of Law, and Drew Hinks, Partner at Winston and Strahan. Together, they delve into the shifts in crypto regulation from the Obama administration through the Trump and Biden eras, current regulatory stances, and future prospects for the industry.

1. Historical Overview of Crypto Policy

Drew Hinks provides a comprehensive timeline of cryptocurrency policy development:

"To think about really sort of the pendular swings that you suggested with respect to crypto policy, we actually have to go a little bit further back into the prior administration, where in 2012 there was literally nothing from the government about digital assets at all." ([04:15])

Under the first Trump administration, the rise of Initial Coin Offerings (ICOs) coincided with increased scrutiny from the Securities and Exchange Commission (SEC). This period saw the SEC issuing Rule 21 reports, consent orders, and ramping up enforcement actions under the Clayton Act. Additionally, IRS tax guidance became more aggressive, negatively impacting the crypto industry. Toward the end of Trump's term, both President Trump and Treasury Secretary Mnuchin criticized digital assets publicly.

Transitioning to the Biden administration, initial optimism faded as SEC Chair Gary Gensler, despite his academic background in crypto, adopted a stringent regulatory approach. The SEC issued numerous Wells notices, subpoenas, and enforcement actions, often leveraging novel legal interpretations. Concurrently, banking regulators made it challenging for crypto businesses to secure essential banking services, intensifying regulatory pressures.

2. Regulatory Approaches: SEC Under Gensler

Carla Reyes critiques Gensler's regulatory stance:

"The problem for the industry under Gensler was that he took the position that every single blockchain related token cryptocurrency art, whatever, was and is and probably will always be a security..." ([07:40])

Reyes highlights that Gensler's broad classification of all crypto assets as securities created confusion and compliance challenges. The industry's struggle to navigate these ambiguous regulations hindered growth and innovation, despite valid concerns about investor protection and systemic risk.

3. Narratives vs. Reality of Crypto Use

The podcast addresses the prevalent narrative of crypto being rife with scams and illicit activities. Carla Reyes counters this with data:

"According to TRM Labs, the percentage of illicit finance and digital asset transactions is actually sitting around 0.44% of overall crypto transaction volume." ([13:48])

Reyes emphasizes that 96.6% of crypto usage is legitimate, debunking the myth that cryptocurrency primarily facilitates illicit activities. Moreover, Kevin Frazier cites a Chainalysis report indicating a 34% decrease in ransomware payments via digital assets in the past year, showcasing industry efforts to mitigate misuse.

4. Arguments for Embracing Cryptocurrency

Kevin Frazier presents the pro-consumer and innovation-driven arguments for cryptocurrency:

"Digital assets provide financial services for those who have traditionally been debanked or unable to access banking services." ([10:41])

He cites an FDIC survey revealing that 4.5% of U.S. households are unbanked and 14.2% are underbanked. For these individuals, cryptocurrencies offer an alternative financial system free from the constraints and discriminatory practices of traditional banking. Additionally, digital assets facilitate new governance models and transaction types, fostering innovation beyond mere financial applications.

5. National Bitcoin Reserve: Concept and Implications

A significant portion of the discussion revolves around the national Bitcoin reserve proposal. Drew Hinks explains its origins and potential impact:

"The basic concept is that the government would buy and hold some amount of Bitcoin or some other digital assets on its books." ([28:50])

The idea draws parallels to the historical backing of U.S. dollars with gold, aiming to position Bitcoin as a reserve asset to hedge against inflation. Senator Lummis introduced the Bitcoin Act, proposing that the government acquire $1 billion worth of Bitcoin, constituting roughly 5% of all Bitcoin in existence. This move raises questions about the Federal Reserve's role and the broader implications for U.S. monetary policy.

Carla Reyes adds context by noting state-level interests:

"States like Wyoming and Texas have been considering adopting state-level Bitcoin reserves, viewing them as a hedge against inflation." ([34:25])

She also references El Salvador's experience with Bitcoin as legal tender, highlighting international ramifications of such initiatives.

6. Future Outlook and Upcoming Regulatory Actions

Looking ahead, Kevin Frazier outlines anticipated regulatory developments stemming from a recent Trump executive order mandating swift action on cryptocurrency policy:

"Within 30 days there needs to be a working group. Within 60 days... within 180 days proposals for a market structure bill and for a stablecoin bill..." ([38:08])

This directive aims to establish comprehensive frameworks addressing market structures, stablecoins, and national digital asset inventories. Carla Reyes underscores the importance of pending legal cases that will shape the future of crypto regulation, including:

• "The man and Fry case in Eastern District of Louisiana about art NFTs and securities law." ([41:07])
• "The Llewellyn case in Fort Worth federal court about publishing code without criminal repercussions." ([41:07])

Reyes advocates for technology-neutral regulations that focus on the function rather than the code itself, preserving open-source innovation while mitigating legitimate risks.

7. Conclusion: Striking a Balance

The episode concludes with a call for balanced regulation that fosters innovation while ensuring consumer protection. Carla Reyes emphasizes the necessity for regulators to thoroughly understand the technology to create effective, function-based laws:

"I hope that regulators and legislatures will continue to learn more about the technology so that they can understand what the functions are and regulate functions properly..." ([41:07])

Meanwhile, Drew Hinks remains optimistic about forthcoming regulatory clarity:

"Dropping claims against large actors... would be a great start. But it's part of the answer." ([38:08])

The guests collectively advocate for a regulatory environment that supports crypto's potential to democratize finance and drive technological advancement, while addressing genuine risks without stifling growth.

Notable Quotes:

• Carla Reyes [07:40]: "The problem for the industry under Gensler was that he took the position that every single blockchain related token cryptocurrency art, whatever, was and is and probably will always be a security..."

• Carla Reyes [13:48]: "According to TRM Labs, the percentage of illicit finance and digital asset transactions is actually sitting around 0.44% of overall crypto transaction volume."

• Kevin Frazier [10:41]: "Digital assets provide financial services for those who have traditionally been debanked or unable to access banking services."

• Drew Hinks [28:50]: "The basic concept is that the government would buy and hold some amount of Bitcoin or some other digital assets on its books."

• Carla Reyes [41:07]: "I hope that regulators and legislatures will continue to learn more about the technology so that they can understand what the functions are and regulate functions properly..."

This episode of The Lawfare Podcast offers an insightful exploration of cryptocurrency policy's past, present, and future. Carla Reyes and Drew Hinks provide expert analysis on regulatory shifts, debunk common misconceptions, and highlight the transformative potential of digital assets in modern finance.