Cheat Sheet: The President’s Working Group on Digital Asset Markets Report

Overview

The July report of the U.S. President's Working Group on Digital Asset Markets (PWG) is one of the most comprehensive and decisive crypto policy documents created by any major government. It's also 166 pages long. For readers who were on summer vacation when this landmark document dropped (or just could never make the time to read the whole thing), Galaxy Research presents our summary of the key points.

The working group was formed in response to an executive order by President Trump, his first such order focused on cryptocurrency, signed just days after his inauguration in January. The PWG is chaired by the president's special advisor for AI and crypto, David Sacks, and composed of top agency leads and administration officials.

In the executive order, the President tasked the PWG with completing an assessment of government crypto policies and publishing a report of regulatory and legislative proposals comprising a federal framework for crypto policy. The President ordered the PWG to consider policy recommendations for market structure, oversight, consumer protection, and risk management. Additionally, the White House directed the working group to propose criteria for establishing and maintaining a national digital asset stockpile (which would eventually be split into two stashes: a Strategic Bitcoin Reserve, and a stockpile of other digital assets).

The resulting report is split into two main parts. The first part, which encompasses a large portion of the report, is dedicated to reviewing market activities and trends, regulatory and legislative developments, major players in the space, types of products and services, and risks posed by the digital asset ecosystem. The second part is a set of recommendations to inform policy decision making across a range of areas, including market structure, banking, stablecoins and payments, illicit finance, and taxation.

For the most part, the report calls for new legislation and regulations to suit crypto's distinctive attributes instead of forcing a square peg into a round hole by applying old rules. Throughout the report, the PWG seeks to promote federal policies that encourage the responsible growth and use of digital assets and blockchain technology. The overarching goals of the report are to promote the use of open public blockchain networks; protect the sovereignty of the U.S. dollar by allowing dollar-backed stablecoins to flourish; support fair and open access to banking services for crypto businesses that financial institutions have often shunned; provide regulatory clarity and well-defined jurisdictional boundaries in a technology-neutral manner; and prohibit the establishment of a U.S. central bank digital currency (CBDC).

Overall, the PWG report supports policies that:

• Establish a clear stance from the federal government on market structure for the first time, seeking to grant the Commodity Futures Trading Commission (CFTC) with the most significant authority over crypto among the many financial regulators

• Prevent further debanking of the crypto industry and promote regulatory guidance that affirms banks' authority to service crypto firms

• Support bringing crypto under traditional tax rules for wash sales and loaned assets, while also providing exemptions and clarifications for de minimis receipts and mining and staking rewards

• Quickly implement the GENIUS Act, encourage payment solution technologies that promote dollar dominance, and prohibit the creation of a CBDC.

• Tailor Bank Secrecy Act (BSA) and anti-money-laundering (AML) regulatory requirements to the idiosyncrasies of crypto businesses, including decentralized finance (DeFi), with additional guidance

While the report does not provide significant new insight into the administration's Strategic Bitcoin Reserve and U.S. Digital Asset Stockpile programs, it does propound over 100 policy positions spanning many categories of the digital asset ecosystem. Among the most notable are its recommendations on market structure, DeFi, and illicit finance. This summary does not cover every recommendation but instead examines the most meaningful ones that will need to be further fleshed out in order to acquire true regulatory clarity for the market.

Discussion of market structure is pointed and extensive in the report, taking up over 40% of the report's recommendations. The CFTC would be empowered with spot market authority, an expansion of its usual remit. Meanwhile, the Securities and Exchange Commission (SEC) would be limited in its jurisdiction over digital securities and encouraged to exercise its authority to exempt digital assets that are not securities despite being tied to investment contracts. The report supports joint rulemakings from the two agencies (something they have rarely done) to efficiently coordinate with each other. Regulatory sandboxes and safe harbors are floated as welcome options in legislation. The PWG mentions the CLARITY Act, which passed the House in May, as an "excellent foundation" for market structure. (The Senate is considering a companion bill.)

Tension underlies the section on illicit finance, as policymakers and regulators try to strike a delicate balance between preserving national security while protecting privacy rights. This tension manifests most starkly through the fact that mixing services are explicitly addressed only once in the recommendations. Even then, the PWG takes no clear stance on mixers, merely encouraging regulators to "consider next steps."

The report's stance on decentralized finance (DeFi) is a little more decisive in relation to service providers' obligations under the Bank Secrecy Act (BSA) as well as overarching regulatory treatment in a future market structure bill. A four-factor test is laid out for determining whether a software application should be subject to regulation, and the "promise" of DeFi is outwardly stated.

Key Provisions and Takeaways

Market Structure

The market structure section begins by calling for a comprehensive federal framework for classifying digital assets. It proposes a digital asset taxonomy that segments digital assets into security tokens, commodity tokens, and tokens for commercial and consumer use.

On tokenized securities, the report clearly states that they fall within the definition of a security under federal securities laws. This aligns with SEC Commissioner Hester Peirce's July statement on tokenized securities, where she applied a security classification to tokenized securities. However, the report immediately emphasizes that the SEC has exemptive authority to clarify the regulatory status of those who operate platforms offering tokenized securities, potentially making use of exemptive actions that are limited in time or scope.

Establishing a clear taxonomy is a pivotal first step toward clarifying the regulatory treatment of crypto products for market participants that have dealt with fragmented interpretations of tokens for years. Once jurisdictional lines are defined for the SEC and the CFTC through market structure legislation, this taxonomy should aid the agencies in applying exemptive relief or clarifying guidance within their spheres of influence in the digital asset ecosystem.

The PWG report discusses a potential framework for the jurisdictional coverage of the SEC and the CFTC for the pending market structure legislation. In particular, the report recommends that the CFTC receive clear authority to regulate spot markets in non-security digital assets, a key feature of the House's CLARITY Act. Historically, the CFTC has regulated derivative contracts but not the spot markets for the underlying commodities (though it had the authority to police fraud in those markets). The CLARITY Act is consistently referred to throughout this portion of the PWG report's market structure section, highlighted as a useful and workable framework. An entire subsection is dedicated to explaining the strengths of CLARITY. Although the CLARITY Act is the primary bill cited for market structure, it is important to note that the Senate's draft of the companion Responsible Financial Innovation Act (RFIA) had not been released at the time that the working group drafted this report. Many of the provisions in the PWG report that are pulled from the CLARITY Act overlap with the RFIA's proposed approach.

The PWG also calls for the SEC to use rulemaking and exemptive authority to de-scope certain digital assets and provide ones involved in investment contracts with safe harbors if their networks are not fully functional or sufficiently decentralized, an approach that has been championed by both Commissioner Peirce and SEC Chair Paul Atkins. Atkins directly endorsed such policy actions in his unveiling of the agency's "Project Crypto," declaring that "most crypto assets are not securities" and supporting an innovation exemption.

Lastly, the market structure section outlines four practical tests for Congress to consider regarding DeFi, which the report notes are factors contemplated by the CLARITY Act. The four factors are the extent to which:

1. A software application exercises "control" over user assets

2. A software application can be modified after it is built or deployed

3. A software application is controlled by, or operates with, a centralized structure or management

4. A software application is technologically or logistically capable of complying with current regulatory obligations

By tackling DeFi headfirst with this four-factor test, the U.S. government is taking a more definitive stance that DeFi has unique characteristics that warrant custom-fit regulatory treatment. This is supplemented by the report's explicit promotion of the CLARITY Act and "the promise of decentralized finance and the ability of software to allow individuals to freely transact with one another." It also recognizes the "importance" of decentralized governance systems to collectively administer blockchain networks.

Banking

On banking, the report seeks to relaunch efforts in the regulatory agencies that spur crypto innovation and address outstanding questions about bank activities. Such efforts target the clarification of permissible activities and supervisory expectations for banks' engagement with digital assets. The report calls on the banking agencies (Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation) to develop best practices and guidance relating to custody, capital, liquidity, and risk management issues with digital assets.

The PWG is clearly trying to make a deliberate break from the prior regulatory approach, which required banks to secure non-objection letters from the agencies before engaging in crypto activities. To promote bank engagement with crypto, the report focuses on enabling chartering and access to Federal Reserve master accounts for banks handling services for digital asset entities. By supporting new regulatory guidance, the report aims to sweep away any remnants of what it calls the "aggressive strategy" (known in the industry as "Operation Choke Point 2.0") that it says was "effectively debanking the industry."

Stablecoins and Payments

Given the July passage of the GENIUS Act, the PWG recommends that the regulatory agencies faithfully and expeditiously implement the law. The PWG praises a wide variety of aspects of the law, including its promotion of payment stablecoin integrity, onshore innovation, cross-border payments, financial stability, competition, consumer protection, regulatory clarity, and national security. The White House views the long-term success of USD-backed stablecoins as promoting and protecting the sovereignty of the U.S. dollar globally.

The report strictly opposes the development and adoption of a U.S. central bank digital currency (CBDC). Consequently, it supports the Anti-CBDC Surveillance State Act, which passed the House in July. Notably, the President also banned federal agencies from creating a CBDC in the same executive order that established the working group. With the aim of preserving U.S. dollar dominance, the PWG recommends promoting U.S. private sector leadership to develop innovative cross-border payments and financial markets technologies. The Treasury Department is called upon to lead this effort by convening stakeholders and providing clarity to U.S. financial institutions that are leading the development of such technologies.

The PWG sets three primary goals for payment solutions that the agencies should support domestically and abroad. These goals are:

1. Protecting the two-tier banking system (in which central banks interact with commercial banks, and commercial banks interact with the public) and promoting the private sector's role in financial intermediation, payment, and capital formation;

2. Safeguarding individual rights and restricting government control of personal financial data; and

3. Implementing anti-money-laundering (AML), countering the financing of terrorism (CFT), and sanctions controls in payment solutions.

These recommendations show how crypto can advance U.S. global leadership and dollar dominance. Now Treasury and other regulators are tasked with implementing the GENIUS Act through rulemaking, which will more clearly define standards and requirements for the various stakeholders, such as issuers, digital assets service providers, and banks.

Countering Illicit Finance

Regarding anti-money-laundering (AML) and countering the financing of terrorism (CFT) policies, the working group outlines existing laws and regulations that should be applied to crypto and suggests additional policymaking that may be required. First, the report urges the speedy implementation of the GENIUS Act, which stipulates that payment stablecoin issuers licensed by the law are financial institutions under the BSA. It then recommends market structure legislation that creates crypto-specific financial institution types within the BSA.

On July 21 (nine days before the PWG report came out), the Financial Crimes Enforcement Network (FinCEN) delayed the effective date of an AML rule for investment advisers to ensure proper cost-benefit analysis and more effectively tailor the rule to the "diverse business models and risk profiles of the investment adviser sector." FinCEN likely delayed the rule to provide affected crypto firms with relief. This relief paves the way for potentially creating crypto-specific categories within the BSA, as recommended by the report, and for tailoring the law's AML requirements to the unique aspects of the DeFi ecosystem.

In light of updated BSA obligations by the GENIUS Act and pending market structure legislation, the report encourages FinCEN to reconsider and potentially rescind, modify or update its 2013 and 2019 guidance relating to crypto accordingly, as well as consider providing additional guidance.

On DeFi, the report suggests that legislation should specify which actors within the DeFi ecosystem should have AML/CFT obligations, highlighting the importance of clarity for DeFi while acknowledging its "attendant risks" within the illicit finance space. The report also proposes codifying how control over an asset affects BSA obligations through legislation such as the Blockchain Regulatory Certainty Act (BRCA), or the CLARITY Act, which incorporated the BRCA. Such legislation could codify that only software providers with "total independent control over value" should be classified as money transmitters under the BSA, offering relief to open-source developers and noncustodial wallet providers. Other recommendations promote the use of Treasury's authority to mitigate illicit finance risks posed by foreign digital asset actors that threaten national security.

The illicit finance chapter is imbued with strategic ambiguity on the PWG's BSA-related policy stance as well as looming tension as the government grapples with balancing national security risk and personal privacy in crypto. Although the report does not tease out this tension, it does push for a balanced approach between the needs of law enforcement and industry.

Previous administrations, including Trump's first administration, opted for a more direct, enforcement-first approach. A Trump 1.0 report from the Department of Justice characterized crypto as a technology that "already plays a role in many of the most significant criminal and national security threats our nation faces," introducing a comprehensive "enforcement framework" for cryptocurrency. Similarly, a Biden-era Treasury report generally called for increased "compliance by virtual assets firms with BSA obligations," stating that "many existing DeFi services covered by the BSA fail to comply with AML/CFT obligations."

In contrast, and in line with the PWG report's language, Trump 2.0's then-Treasury Deputy Secretary Michael Faulkender in June expressed support for "BSA modernization efforts" that direct "fewer resources to lower-risk areas" of the industry and that "streamline SAR [suspicious activity report] reporting" and currency transaction report filing.

On the other hand, the report seems to punt on the matter of mixing services, which strengthen user privacy but also help bad actors cover their tracks. Under a still-pending proposed rule from the Biden era, FinCEN would treat crypto mixing as a class of transactions of primary money laundering concern - a shift from targeted, after-the-fact enforcement actions against individual mixers to a broad, proactive regulatory approach. The PWG report recommends that FinCEN "consider next steps" for this proposal - which could mean finalizing it, modifying it, or scrapping it.

Testifying before Congress on Sept. 9, FinCEN director Andrea Gacki sounded similarly noncommittal, saying the agency is "exploring the next step on" the proposed rule. Further hinting at ambivalence among the administration, she added: "We have to make sure that we tailor any approach here to be really directed at illicit activity and that we are not sweeping in any legitimate transactions."

Even if it's of two minds on the topic of privacy, the report is unequivocal in its support of another core value of the crypto community: the right to self-custody. It encourages Congress to codify this right through the CLARITY Act and ensure the following principles:

1. The importance of U.S. individuals maintaining the capability to lawfully hold, or custody, their own digital assets without a financial intermediary

2. The importance of enabling U.S. individuals to engage in lawful, direct digital asset transfers that do not involve a financial intermediary with another individual that lawfully self-custodies digital assets

Taxation

The PWG report tackles taxation in relation to crypto by recommending that Congress enact a new classification for digital assets with modified versions of tax rules for commodities or securities. Because the GENIUS Act does not address tax treatment of stablecoins, the PWG asks that future legislation clarify how payment stablecoins are characterized for federal income tax purposes. Additionally, the report calls for Congress to enact legislation that applies wash sale rules to digital assets. Through wash sales, digital assets can be sold at a loss and quickly repurchased to claim a tax deduction on the loss. Such maneuvers are forbidden for stocks, bonds, options and other securities. By applying these restrictions to crypto, crypto investors will be subject to the same rules as traditional finance, no longer able to claim such tax deductions by creating artificial losses.

The Treasury and IRS are encouraged to write guidance that addresses the calculation of adjusted financial statement income (AFSI) in relation to crypto assets. Specifically, the report wants the Treasury and IRS to clarify the treatment of unrealized gains and losses on investment assets that are not stocks and partnership interests, including crypto assets. Some of these tax policy recommendations incorporate reforms proposed by Sen. Cynthia Lummis (R-WY) in her 2025 bill - including, critically, the application of wash sale rules to digital assets and the timing of recognizing mining and staking income for tax purposes. Representative Max Miller (R-OH-7) is expected to release his own comprehensive crypto tax reform bill in September that would also include many of these policies.

Modifying tax treatment of mining and staking rewards is a crucial policy change for the industry. Sen. Lummis and Rep. Drew Ferguson (R-GA-3) have proposed recognizing mining and staking rewards as taxable income until their actual sale or disposition, instead of the current treatment that recognizes these rewards upon their receipt. (Imagine taxing a farmer for vegetables he has grown but not sold.) This change attempts to align tax treatment with realized economic benefit. It aims to ensure that proper fair market values can be calculated for the rewards in taxable income and ease cash flow problems for taxpayers that hold these unsold assets.

The Bitcoin Strategic Reserve and U.S. Digital Asset Stockpile

Notably, although the original PWG executive order directed the report to evaluate the creation and maintenance of the U.S. Digital Asset Stockpile and contain "criteria for establishing" it, the report does not contain substantive recommendations for the Stockpile nor the Bitcoin Strategic Reserve. Instead, the report reiterates the provisions from the subsequent executive order that initially established the Reserve and Stockpile. These provisions include the establishment of an office within Treasury to administer the Reserve and Stockpile; the capitalization of the Reserve and Stockpile with forfeited digital assets; and the development of budget-neutral strategies to acquire additional bitcoin for the Reserve.

The lack of expanded detail on the Reserve and Stockpile is indicative of the operational and legal obstacles that accompany establishing such unprecedented forms of government-administered digital asset reserves, whose novel custodial, accounting, and statutory frameworks have yet to be fully worked out. Likewise, the implementation of the Reserve and Stockpile seems to be a daunting task, as there is no official notice that an office within Treasury has been established that is dedicated to managing the reserves. However, since the report came out, officials have disclosed that the reserve holds about 200,000 bitcoin and that the federal government will not be buying more BTC for the reserve nor selling what it has. Secretary Bessent has not ruled out using additional confiscated assets to continue to build up the Strategic Bitcoin Reserve.

Outlook

As one of the most comprehensive government reports on the digital asset market ever published, the PWG Report dives into the key areas that regulators and lawmakers need to prioritize. This report now stands as the foremost set of recommendations officially released by an interagency U.S. body, reflecting a broad spectrum of perspectives.

By evaluating the report's analysis and recommendations, regulators, legislators, market participants, and scholars are better positioned to contemplate sweeping crypto policies backed by the U.S. administration. Because of this groundwork and corresponding policy momentum, clear market structure legislation, updated regulatory guidance and rulemakings, tailored tax legislation, and national security-focused oversight measures may be closer than ever before.