Trump to Cool Down on Crypto Crackdown, Shifts Justice Focus to Immigration

During the election campaign, US President-elect Donald Trump promised to ease up on the regulation of cryptocurrencies, and it looks like steps are already being taken in that direction.

Several senior current and former government lawyers who spoke at a conference hosted by the Practising Law Institute in New York on Friday, shared the message that while crypto fraud cases will continue to be pursued by regulators they won’t be a high priority, Reuters reported. The lawyers said there’s already a clear shift happening as the Trump administration prepares to take office — away from financial regulation, including crypto, and towards cracking down on immigration law.

CNN reports that the crypto industry injected US$131 million (AU$202.4 million) into US congressional races through crypto super PACs during the recent election to turn the regulatory tide in its favour. Head of the US Blockchain Association Kristin Smith told CNN: 

As a result of this past election, we’ll have the most pro-crypto Congress that has ever been elected but also the most pro-crypto administration that’s ever been in power.

Kristin Smith, US Blockchain Association

Related: SEC in Hot Water: 18 States Sue as Gensler’s Crypto Freeze Backfires

Less Resources Dedicated to Regulating Crypto

Practising Law Institute conference speaker Scott Hartman, the co-chief of the securities and commodities taskforce inside Manhattan’s US Attorney’s Office, said his office would put less resources into pursuing crypto cases under the new Trump administration. 

Hartman said that the office won’t be ignoring crypto fraud, but it already has fewer resources and staff working on these cases than it did during the crypto market collapse of 2022, and further staff cuts were possible. He indicated the slack could be picked up by regulatory agencies, presumably the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC):

We brought a lot of big cases in the wake of the crypto winter – there were a lot of important fraud cases to bring there. But we know our regulatory partners are very active in this space, and we don’t have a lot of people.

Scott Hartman, Manhattan US Attorney’s Office

In the wake of the 2022 crypto collapse, the US Attorney’s Office in Manhattan prosecuted many of the biggest and most high-profile criminal cases, including the case against former FTX supremo Sam Bankman-Fried.

Regulatory Agencies Also Likely to Take a Step Back

At the same time the Manhattan US Attorney’s Office is dialling back its prosecution of crypto cases, regulators also look set to take a softer approach to crypto. 

The former director of enforcement at the CFTC, Ian McGinley, told the conference that since 2015 when the agency prosecuted its first crypto case, its involvement with the industry has grown rapidly, with crypto now accounting for almost half its caseload. But McGinley doesn’t expect this trend to continue:

I don’t know if that trend will necessarily continue. To the extent there’s fraud and manipulation in those markets, we’ll continue to be active.

Ian McGinley, Former director of enforcement at the CFTC

Additionally, SEC Chair and noted crypto-hater, Gary Gensler, is widely expected to be replaced with a more pro-crypto pick sooner rather than later. When Gensler is replaced we could well see many of the highest profile crypto cases dropped or settled, including the cases against Ripple, Coinbase and Binance.

Related: ‘Golden Age of Crypto’: Analysts Say Trump Win to Usher in New Era for US Crypto Policy

So if the legal focus of Trump’s second administration drifts away from financial crime and crypto fraud, where will it shift to?

Steve Pelkin, who led SEC enforcement during Trump’s first term as president, believes the focus will likely shift to immigration, telling the conference that the justice department will likely realign its priorities to match those of the new president:

There could be a reallocation of substantial resources to immigration enforcement. I would be surprised if that doesn’t happen.

Steve Pelkin, Former SEC director of enforcement