This will be the first US electoral cycle in which crypto policy is going to play a major role. At present, only one party has done anything to court the crypto community. Kamala Harris must lay out her own agenda for cryptoassets or she risks ceding the ground entirely to the Republicans.
It should be no surprise that the crypto community and the Republican party found they had something in common. Crypto has always flaunted its anti-establishment flavour, so the party of small government, particularly the version crafted in the image of former president Donald Trump, is perhaps its more natural political home.
Senior Democrats have certainly done nothing to persuade the crypto community that they want to represent its interests in any way. The last four years have been characterised by an absence of clarity for the crypto community. Where other jurisdictions – the European Union, Switzerland, Hong Kong, Singapore – have put legislation in place to clarify the regulatory status of crypto businesses, the US has lagged. While bills have been written – the Financial Innovation and Technology for the 21st Century bill on crypto market structures even passed the House with bipartisan support – they have faced stern opposition from Senator Elizabeth Warren, among other leading Democrats.
President Joe Biden’s decision to veto the overturning of SAB 121 – Securities and Exchange Commission guidance that makes it difficult for banks to hold cryptoassets – also sent a clear signal of the administration’s profoundly crypto-sceptic stance.
Away from Capitol Hill, the SEC’s ‘regulation by enforcement’ approach has been so divisive that some of its own commissioners have broken ranks to criticise it. The agency has embarked on a number of unpopular and unsuccessful suits against high-profile constituents of the crypto ecosystem (particularly Ripple) that, if successful, would have threatened the existence of a US crypto industry. The fact a judge has ruled against them in these cases has done nothing to repair the regulator’s reputation in the eyes of the crypto community.
Funding the campaign
Trump has, with characteristic opportunism, identified a segment of disgruntled voters and, perhaps more importantly, potential donors. The crypto community contains a large number of wealthy individuals for whom a continuation of the hostile approach of the past four years is an existential threat to their wealth.
Trump announced earlier this year that he would accept campaign donations denominated in crypto. He followed up with a promise that the crypto industry would be regulated by someone who loves it, even going so far as to say that firing SEC chair Gary Gensler was a day one matter. He also promised that the US Treasury would build a bitcoin stockpile by keeping the bitcoin it seizes from criminals, rather than auctioning it off.
How significant such a stockpile would be will depend on the implementation details. For it to be a meaningful strategic reserve would probably require a bill from Congress, but it is nevertheless a powerful signal that he considers it an asset that is likely to have persistent value.
Perhaps more importantly, acquiring 200,000 bitcoin a year over five years will give the US a not inconsiderable share of the eventual 21m total bitcoin. This reduction in free-floating supply is likely to drive the asset price up. This measure alone might be enough to attract campaign finance donations from those with significant bitcoin holdings.
Regulating crypto
It is possible for Harris to regain control of this issue. Much of the hard work of drawing up legislation has already been done. The FIT21 bills and the Stablecoins act, though not perfect, would certainly provide the industry with vital regulatory clarity.
If Harris takes the forthcoming Democratic National Convention as an opportunity to adopt a conciliatory approach towards the crypto industry, treating it as more than a haven for illicit finance and investment scams, and promises to throw her weight behind the crypto regulation bills, that would go a long way towards eating into the industry support Trump is gathering.
There is little to be lost, and potentially much to be gained. Few will abandon the Democrats because they show support for the growth of the crypto industry – particularly when the Republicans have already done so. But luring some of the votes and donations from crypto supporters and donors away from the Republican camp, could make a difference in key battleground states.
More importantly, treating crypto as a partisan issue is not the way to ensure that the fairest, most robust legislation, drawing on the best advice, is enacted. Regulating crypto is complicated. While a great many of the criminals and scam artists have been shaken out over the past few years (thanks, in part, to the SEC’s energetic pursuit), it remains a potential vector for criminal activity and a source of new risks to investors. Properly regulated, it can provide economic growth and opportunity. Making it a partisan football would do not just the crypto industry, but the country, a disservice.
Lewis McLellan is Editor of OMFIF’s Digital Monetary Institute.
