AI and digital assets are undergoing rapid transformation, with significant changes expected under the new Trump administration. With the appointment of David Sacks as the new AI and Crypto Czar and the resignation of Gary Gensler from the Securities and Exchange Commission (SEC), these developments signal a shift in how the federal government plans to regulate and support these groundbreaking technologies.

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David Sacks: Leading a Unified Approach to AI and Crypto

David Sacks, a seasoned entrepreneur in technology and blockchain, has been appointed as the administration’s AI and Crypto Czar. His appointment reflects the administration’s recognition of the interconnectedness of these two fields. With a deep understanding of decentralized systems and open-source innovation, Sacks is expected to champion policies that balance innovation with necessary safeguards.

Sacks’ appointment signals a pivot from the historically fragmented regulatory approach, where AI and cryptocurrency were often treated as distinct domains. His mandate includes fostering collaboration between industry stakeholders and government agencies, streamlining regulatory frameworks, and promoting U.S. leadership in these critical areas.

US Dollar-Denominated Stablecoins and Payment Innovations

David McCarville chairs Fennemore Labs, the firm’s technology committee and leads groundbreaking initiatives to integrate advanced legal technologies, particularly AI, into the practice of law.

The new administration is set to clarify rules for US dollar-denominated stablecoins, paving the way for their broader use in payments. Stablecoins are digital assets designed to maintain a stable value by being pegged to a reserve asset, such as the US dollar. These assets combine the efficiency and speed of blockchain-based transactions with the reliability of traditional currencies, making them a compelling tool for modern payment systems.

Regulatory clarity is expected to establish clear standards for the issuance, management, and use of stablecoins, particularly for payment purposes. This clarity will likely address concerns around consumer protection, reserve backing, and financial stability, enabling stablecoins to be seamlessly integrated into the broader financial system.

For businesses, the adoption of stablecoins as a payment method offers several advantages:

  1. Faster Transactions:
    • Stablecoins can facilitate near-instantaneous payments across borders, reducing the time delays often associated with traditional banking systems.
  2. Lower Costs:
    • By bypassing intermediaries such as banks and payment processors, stablecoins can significantly reduce transaction fees, especially for international payments.
  3. Improved Cash Flow Management:
    • Stablecoins enable real-time settlement, allowing businesses to access funds immediately and improving liquidity management.
  4. Increased Financial Inclusion:
    • Businesses operating in regions with limited access to traditional banking infrastructure can leverage stablecoins to expand their customer base and streamline operations.

Bitcoin as a Treasury Asset

Bitcoin, despite stablecoin advancements, remains uniquely positioned as a strategic asset for businesses. As the first and most prominent cryptocurrency, Bitcoin has evolved beyond its initial use case as a decentralized peer-to-peer payment system. Today, it is increasingly viewed as a store of value and a potential hedge against inflation, similar to gold.

Regardless of whether the U.S. government adopts Bitcoin as part of a strategic reserve, private companies are beginning to emulate the approach of MicroStrategy and other pioneers by diversifying their treasury holdings to include Bitcoin. Businesses that allocate a portion of their treasury to Bitcoin benefit from several potential advantages:

  1. Inflation Hedge:
    • Bitcoin’s fixed supply of 21 million coins makes it a deflationary asset, offering protection against the erosion of value caused by inflation.
  2. Portfolio Diversification:
    • Holding Bitcoin can reduce risk by diversifying a company’s treasury portfolio beyond traditional fiat currencies and assets.
  3. Enhanced Liquidity and Accessibility:
    • Bitcoin operates 24/7 on a global scale, allowing companies to access liquidity and settle transactions outside of traditional banking hours.
  4. Market Leadership and Innovation:
    • Adopting Bitcoin signals to stakeholders that a company is forward-thinking and prepared to embrace innovative financial strategies.

For businesses considering Bitcoin as a treasury asset, it is critical to weigh the risks, including price volatility and regulatory uncertainty. However, as institutional adoption grows and regulatory frameworks solidify, the case for Bitcoin as a strategic asset is becoming increasingly compelling.

NFTs and Their Potential Comeback

Non-Fungible Tokens (NFTs) faced challenges due to regulatory uncertainty but hold significant potential in the collectibles and sports trading card markets. NFTs are poised to make a strong comeback, particularly once regulatory clarity confirms they are not categorized as securities.

NFTs represent unique digital assets that are verified on the blockchain, making them ideal for collectibles and trading card applications. In the sports market, NFTs can revolutionize the way fans engage with their favorite teams and athletes. For example, college athletes, leveraging their Name, Image, and Likeness (NIL) rights, could use NFTs as part of their revenue generation strategies.

  1. Enhancing Fan Engagement:
    • NFTs allow fans to own exclusive digital memorabilia, such as game highlights, autographed digital collectibles, or limited-edition trading cards. This creates a direct connection between athletes and their supporters.
  2. New Revenue Streams for Athletes:
    • College athletes can mint and sell NFTs tied to key career moments, personal branding, or exclusive experiences. By doing so, they can generate income while maintaining control over their intellectual property.
  3. Transparency and Authenticity:
    • Blockchain technology ensures the authenticity and provenance of NFTs, reducing issues of counterfeiting and fraud common in traditional collectibles markets.
  4. Expanding Market Opportunities:
    • As NFTs become more accessible, businesses operating in sports merchandise, gaming, and entertainment can explore partnerships with athletes to create co-branded NFT products, reaching a broader audience.

The resurgence of NFTs in these markets hinges on clear regulatory guidelines that distinguish them from securities. Once this clarity is established, businesses and athletes alike will have the confidence to fully leverage NFTs as a tool for engagement and monetization.

Why AI and Digital Assets Are Linked

AI and digital assets share decentralized, transparent, and open-source traits, making their connection natural. Both are rooted in decentralization, transparency, and open-source innovation, which are reshaping traditional paradigms in industries ranging from finance to healthcare.

  1. Decentralization:
    • AI and blockchain technologies thrive on decentralized models. Blockchain’s distributed ledger system eliminates the need for intermediaries, just as AI increasingly leverages decentralized computing power to enhance scalability and efficiency.
  2. Open-Source Development:
    • Both fields benefit from open-source ecosystems. The transparency of open-source AI models and blockchain protocols fosters collaboration and accelerates innovation. However, it also raises concerns about misuse and security risks, necessitating thoughtful governance.
  3. Data Integrity and Security:
    • Blockchain’s immutable ledger offers a robust solution for ensuring data integrity, which is critical for training AI models. By combining these technologies, businesses can enhance trustworthiness and accountability in AI-driven applications.
  4. Global Reach:
    • Both AI and digital assets operate beyond national borders, raising challenges around jurisdictional regulations and compliance. Harmonizing international standards will be a key focus of the new administration’s policy agenda.

Implications for Business Owners

Business owners face both challenges and opportunities as the policy landscape evolves. Understanding the shared characteristics of AI and digital assets can help businesses anticipate how regulatory changes might impact their operations:

  1. Streamlined Compliance:
    • A unified regulatory framework could simplify compliance processes, reducing the burden on businesses that utilize both AI and blockchain technologies.
  2. Innovation Incentives:
    • Policies aimed at fostering innovation, such as tax incentives or grants for AI and blockchain startups, could create new opportunities for growth and investment.
  3. Enhanced Payment Systems:
    • The adoption of stablecoins for payments can create more efficient and cost-effective financial transactions, benefiting businesses that embrace these technologies early.
  4. Treasury Management Strategies:
    • Diversifying treasury holdings to include Bitcoin can provide an inflation hedge and signal a commitment to financial innovation.
  5. Revenue Opportunities with NFTs:
    • Clear regulatory guidance on NFTs can unlock new revenue opportunities for businesses in sports, entertainment, and collectibles markets.
  6. Increased Accountability:
    • Enhanced data security measures and transparency requirements could improve consumer trust, benefiting businesses that prioritize ethical practices.

AI’s Positive Impact on Businesses

AI is transforming industries by significantly increasing efficiency and reducing operational costs. Early adopters of AI technologies can gain a competitive advantage by automating repetitive tasks, improving decision-making through data analysis, and enhancing customer experiences. These innovations not only reduce expenses but also enable businesses to capture greater market share by delivering faster, more personalized services.

The rise of AI also supports the growth of “little tech” companies—small and mid-sized firms leveraging AI to develop niche solutions and disrupt traditional markets. By democratizing access to advanced tools, AI empowers these companies to compete with larger players, fostering an innovative and dynamic economy. This wave of innovation could further solidify the U.S. as a global leader in technology, driving economic growth and creating new opportunities across industries.

Looking Ahead

The new administration aims to position the U.S. as a leader in AI and digital assets by fostering innovation and streamlining regulations. By recognizing the interconnected nature of these fields, providing regulatory clarity around stablecoins and NFTs, and supporting Bitcoin’s adoption as a treasury asset, policymakers are paving the way for a more cohesive and supportive regulatory environment.

For business owners, staying informed about these changes will be crucial. Embracing the potential of AI, digital assets, stablecoins, Bitcoin, and NFTs while navigating the evolving regulatory landscape can unlock new opportunities and ensure long-term success in a rapidly changing world.

Author: David McCarville is a legal technologist and partner at Fennemore, the fastest-growing AMLaw 200 law firm in the country. He Chairs Fennemore Labs, the firm’s technology committee and leads groundbreaking initiatives to integrate advanced legal technologies, particularly AI, into the practice of law. His expertise extends to blockchain and cryptocurrency and he is an adjunct professor at the Sandra Day O’Connor College of Law at Arizona State University where he teaches a course on blockchain and cryptocurrency law. Photo is courtesy of Fennemore.