We Read The 160-page Policy Report By The Working Group On Digital Asset Markets, So You Don't Have To

I. Context

The Working Group on Digital Asset Markets led by the U.S. Crypto and AI tsar David Sacks has released a comprehensive 160-page policy report outlining a coordinated U.S. federal strategy to regulate and integrate digital assets into the broader financial system (the "Policy Report"). Building on recent legislative developments—including the GENIUS Act (on stablecoin issuance and supervision, read our summary and analysis on the GENIUS Act here) and the CLARITY Act (on market structure and asset classification, read our summary and analysis on the CLARITY Act here)—the Policy Report recommends targeted reforms across tax policy, financial regulation, enforcement priorities, and interagency coordination.

II. Policy Report Chapter Summaries

1. Chapter I – Introductions

Key themes of the Policy Report include the need for regulatory clarity, structured pathways for innovation, and strengthened compliance with anti-financial crime frameworks. Proposals include safe harbors and sandbox programs for DeFi, new tax guidance on mining and staking, enhanced oversight of digital asset intermediaries, and the establishment of a Bitcoin Strategic Reserve. While implementation details remain forthcoming, the Policy Report signals a shift toward a more structured and innovation-permissive digital asset regime in the U.S., with implications for developers, platforms, and institutional actors across global markets.

2. Chapter II – Digital Asset Ecosystem

Market Landscape & Participants. Over 55 million Americans—more than one in five—have owned cryptocurrencies, underscoring the sector's mainstream adoption. The chapter maps the evolving digital asset ecosystem, from centralized exchanges and custodians to miners, developers, and emerging DeFi platforms. It highlights blockchain's disintermediated structure and the rapid rise of both retail and institutional participation.

Regulatory Fragmentation. U.S. oversight remains fragmented across federal and state agencies, with no unified approach to spot-market regulation for non-securities. The Policy Report cites the CLARITY Act as a key legislative step toward resolving jurisdictional overlap and enabling self-custody, while noting that international competitors are advancing faster with coherent frameworks.

3. Chapter III – Digital Asset Market Structure

Token Classification & Regulatory Clarity. The Policy Report calls for a statutory taxonomy to end uncertainty over whether tokens are securities or commodities. It endorses the CLARITY Act's dual SEC-CFTC framework and urges interim regulatory coordination to recognize decentralized digital commodities and exempt qualifying token offerings from registration. Federal preemption of conflicting state laws is also recommended to streamline compliance.

Enabling Trading & Innovation. Regulators are encouraged to modernize rules to support trading platforms, token distributions (including via airdrops or rewards programs), and DeFi applications. Recommendations include SEC safe harbors, joint sandbox programs, updated definitions for "exchange" and "broker," to accommodate decentralized exchanges and automated market makers and eventual convergence toward a unified licensing model. The Policy Report also supports tokenization of traditional assets under appropriate oversight.

4. Chapter VI – Banking and Digital Assets

Banking Access & Innovation. The Policy Report calls on banking regulators (Federal Reserve, FDIC, OCC) to re-engage with digital asset innovation by clarifying how banks can safely offer crypto-related services—such as custody, reserve deposits, and tokenized products. Agencies are encouraged to relaunch fintech programs and modernize supervisory guidance to support responsible integration of blockchain technologies into banking operations.

Charters, Accounts & Capital Treatment. Recommendations include establishing clearer timelines for approving bank charters and Federal Reserve master account access (required to access the FedWire clearing and settlement system), particularly for stablecoin issuers and fintech firms. The report also urges U.S. regulators to reassess crypto capital rules to ensure they are risk-based rather than punitive, including appropriate treatment of tokenized traditional assets. Policymakers are encouraged to enable banks to issue tokenized deposits and participate in blockchain networks under robust prudential standards.

Chapter IV envisions a future where banks and crypto coexist and collaborate: banks provide critical services to the digital asset sector, and in turn leverage blockchain tech for faster, more efficient financial products.

5. Chapter V – Stablecoins and Payments

Chapter V reinforces the GENIUS Act's stablecoin framework—now law—as the cornerstone of U.S. digital payment innovation. The Policy Report urges rapid implementation of its prudential licensing regime, AML safeguards, and asset-backing standards to ensure stablecoins can scale responsibly. In parallel, it opposes any retail Central Bank Digital Currency, citing risks to financial freedom and privacy. Instead, the Policy Report calls for modernizing U.S. payment rails and promoting private-sector digital dollar solutions—both domestically and with global allies—as a means of preserving dollar leadership in the evolving financial system.

6. Chapter VI – Countering Illicit Finance

Chapter VI acknowledges that digital assets can be misused for illicit activities such as money laundering, sanctions evasion, and terrorist financing. While blockchain transparency can aid investigations, tools like mixers (blockchain-based tools designed to obfuscate the origin and destination of digital assets) and DeFi protocols pose new enforcement challenges.

The Policy Report calls for modernizing AML/CFT rules to be tech-neutral and risk-based. It urges FinCEN to clarify Bank Secrecy Act obligations for crypto, particularly around DeFi participants, and recommends that Congress define clearer categories for regulated actors. The chapter also supports protecting lawful peer-to-peer use and self-custody, while encouraging new enforcement tools—such as special measures against rogue crypto exchanges and better sanctions guidance. It endorses privacy-enhancing technologies to balance compliance and user rights, and calls for updated guidance from Treasury and FinCEN to reflect the evolving regulatory landscape.

7. Chapter VII – Taxation

The Policy Report highlights growing tension between the U.S. tax code and the realities of digital asset use. While crypto is currently taxed as property (triggering capital gains on disposal), practical ambiguities remain—especially around staking, mining rewards, token "wrapping," and crypto-to-crypto trades. The absence of clear guidance has created compliance burdens and opens loopholes.

To address these challenges, the Policy Report urges the IRS to provide official guidance on priority issues, including when new crypto earned from network participation should be taxed, whether changing the form of a token without selling it is considered a taxable event, and how to handle unrealized crypto gains under corporate tax rules for large companies.

In parallel, the Policy Report calls on Congress to modernize tax rules for digital assets. It recommends closing certain tax loopholes that allow investors to harvest artificial losses while immediately repurchasing the same assets, providing legal clarity for crypto lending and asset swaps, and simplifying the treatment of small gains or losses when digital assets are used as a form of everyday payment.

The Policy Report also recommends harmonizing tax and AML reporting, such as requiring Americans to report overseas crypto accounts, while avoiding duplicative filings.

Taken together, these changes are intended to simplify taxpayer compliance, close abusive loopholes, and enable the long-term integration of digital assets into the U.S. tax system.

III. Implementation

Implementation of the Policy Report's recommendations is already underway across multiple fronts. In the near term, agencies like the SEC and CFTC are expected to issue no-action relief, launch pilot programs, and pursue sandbox models—steps that may fall under the SEC's "Project Crypto," an internal initiative to streamline rulemaking and innovation pathways for digital assets. Bank regulators, including the Fed and OCC, are preparing to revise crypto-related policy guidance, while Treasury and FinCEN are initiating reviews of AML, sanctions, and reporting frameworks. Legislatively, the second half of 2025 is critical: stablecoin implementation is ongoing under the GENIUS Act, while the CLARITY Act awaits Senate action. Tax updates, including clearer rules on staking and token treatment, may emerge through IRS guidance or year-end budget legislation. Across the board, implementation timelines are tied to existing executive orders, statutory deadlines, or fiscal policy cycles, setting the stage for substantial regulatory movement through late 2025 and into 2026.

IV. Conclusion

Over the next 12–18 months, the U.S. regulatory landscape will evolve rapidly. Industry participants across jurisdictions should prepare now: track key U.S. legislative developments, monitor agency rulemakings, engage with consultations, and strengthen internal compliance infrastructure. As digital asset markets mature under clearer rules, early alignment with emerging global standards will be critical—not just for legal certainty, but for accessing the next generation of regulated, interoperable crypto-financial markets.

VII. About McMillan's Perspective

While McMillan LLP does not practice U.S. law, and the foregoing is only an overview and does not constitute legal advice. Our team, however, our team closely monitors legal, regulatory, and market developments in the digital asset space globally. We remain committed to keeping our clients and audience informed about key international policy initiatives—such as the Policy Report—and reflecting on how such developments may influence Canadian policy approaches and regulatory positions on comparable digital assets and market structures. By staying ahead of digital innovation and cross-border policy shifts, McMillan supports clients in anticipating change, managing risk, and identifying new opportunities across the evolving digital economy.