As the world continues to embrace digital currencies and blockchain technology, the cryptocurrency industry is solidifying its position on a broad scale as a key part of the global economy.
2024 has been a big year for the crypto sector, with milestones including a new all-time high for Bitcoin and the approval of spot Bitcoin and Ether exchange-traded funds in the US.
The US election is less than a day away, and the outcome will have far-reaching implications for the crypto market. Issues such as regulation, taxation and the integration of cryptocurrencies into the mainstream economy will be critical in shaping the future of this dynamic sector.
The stakes are high for crypto market participants who want to secure their interests in a rapidly evolving financial landscape. Perhaps unsurprisingly, this burgeoning market has become a major talking point in the US election cycle for crypto-friendly voters pushing for a favorable regulatory framework. Survey data from a Harris Poll conducted on behalf of Grayscale showed that nearly half of likely voters somewhat or strongly agree that crypto, blockchain and automated technologies are the future of finance.
Over the final weekend before the election, the perceived odds of Democratic nominee Vice President Kamala Harris winning have increased. A Des Moines Register/Mediacom survey of 808 Iowa voters revealed Harris lead Republican nominee Donald Trump 47 percent to 44 percent amongst independent likely voters, a demographic that had previously favored Trump in the last two elections.
In the wake of the poll data being released on November 2 at 4:00 p.m. PDT, so-called “Trump trades,” including Bitcoin, declined. Bitcoin rallied last week to come within reach of its all-time high price of US$73,798, gaining over 7 percent in a little over 24 hours on October 29 to rise to a weekly peak of US$73,295. As of 3:00 p.m. EST on November 4, Bitcoin is worth US$67,874.
On PolyMarket, bettors favored Trump on October 28 with a 66.1 percent probability of winning compared to Harris’ 33.8 percent. However, Trump’s lead narrowed over the following days, with the gap closing to 55 percent for Trump and 44.3 percent for Harris on November 3. Notably, Project FiveThirtyEight’s aggregate polling data showed a much closer race, with Harris maintaining a slim majority lead throughout October.
As the crypto narrative continues to intertwine with the US election cycle, the choices made in the voting booth could well determine the trajectory of this transformative technology. The stage is set for a pivotal moment in the crypto industry’s history, and the decisions made in the next few months will echo far into the future of finance.
How is the crypto sector influencing the US election?
While the US election is set to impact the crypto market, the reverse is also true — the industry is already influencing lawmakers at both the federal and state levels as voting day approaches.
In December 2023, in order to gain a toehold in the political sphere, a group of three affiliated super political action committees (PACs) backed by prominent figures in the crypto sphere revealed plans to invest a substantial US$78 million with the aim of supporting crypto-friendly candidates in their political campaigns.
Fairshake, one of the group’s three affiliated super PACs, has now raised upwards of US$200 million through donations from major stakeholders, including significant contributions from the Winklevoss twins and companies such as Kraken, Coinbase (NASDAQ:COIN) and Electric Capital Partners. The group reportedly spent around US$10 million on attack ads to sway voters against Representative Katie Porter (D) in California’s Senate race in March, which she ultimately lost. The Cedar Innovation Foundation, another super PAC group with unknown backers, reportedly engaged in similar lobbying efforts in January to unseat crypto cynic Senate Banking Chairman Sherrod Brown (D-OH).
Before President Biden withdrew as the Democratic candidate, Republicans were the primary beneficiaries of super PAC support. However, the situation changed almost immediately when Vice President Kamala Harris entered the race, although she remained tight-lipped on the issue for weeks following her nomination.
A new advocacy group, Crypto4Harris — which included billionaire and crypto advocate Mark Cuban and SkyBridge Capital founder Anthony Scaramucci — was quick to throw its support behind Harris, who was perceived as more receptive towards the industry.
At the Democratic National Convention on August 21, an aide to Harris’ team said she would “support policies to expand the industry.” Harris confirmed her position on the issue at a Wall Street fundraiser a month later while emphasizing that consumer protection is an equally paramount part of her “Opportunity Economy” pledge.
At a rally in Erie, Pennsylvania, on October 14, Harris reaffirmed her commitment to supporting the crypto industry, stating that her administration would establish rules for digital assets.
Following this announcement, Chris Larsen, the co-founder of Ripple Labs, donated US$1 million worth of his company’s native tokens XRP to Future Forward, a significant super PAC that’s backing Harris’ run. Ripple Labs has been engaged in a years-long battle with the SEC over sales of XRP. Judge Analisa Torres ruled in Ripple’s favor in August, but the SEC reopened the case by filing a motion to appeal on October 2.
How is crypto currently regulated in the US?
The regulatory landscape for the crypto industry in the US is still evolving, and further developments are expected to occur in the coming years. As it stands, various government agenciesemploy diverse strategies to regulate different aspects of the industry, reflecting their unique mandates and objectives.
The US Securities and Exchange Commission (SEC) is the primary regulator of securities in the US and, under Chairman Gary Gensler, who was appointed by President Joe Biden, it has taken the view that many cryptocurrencies constitute securities and are therefore subject to federal securities laws.
The Commodity Futures Trading Commission (CFTC) is the primary regulator of futures and options contracts in the US. It is of the opinion that certain cryptocurrencies, such as Bitcoin and Ethereum, are commodities due to their decentralized nature and the fact that they are not backed by a government or other central authority.
Both regulators have taken action against crypto exchanges for breaking laws. Most notably, the CFTC brought charges against Binance founder Changpeng Zhao for violating the Commodity Exchange Act in March 2023. Meanwhile, the SEC has been involved in litigation against numerous crypto companies for years.
Majority party split on crypto regulation
Democrats appear divided on the best approach to crypto regulation. While some have cited concerns that overregulation could stifle innovation, other representatives, like Senator Elizabeth Warren (D-MA), have advocated for more stringent policies, citing threats to national security without proper money-laundering provisions in place.
That division became evident when a resolution to overturn the SEC’s Staff Accounting Bulletin 121 (SAB-121) passed in the House in early May. The resolution, which requires firms that provide custody for crypto assets to record them as liabilities, was primarily backed by Republicans, who argued it would reduce regulatory burdens, enable crypto innovation and challenge the SEC’s evolving guidance on digital asset custody. Opponents said reversing the order would undermine the SEC’s authority, which put the measure in place to protect consumers and investors from fraud.
Despite Biden’s opposition to the resolution and his promise to veto the decision, 11 Democratic senators crossed party lines to vote in favor, including Senate Majority Leader Chuck Schumer. His vote to repeal SAB-121 may have been motivated by Republican nominee Donald Trump’s recent support of crypto-friendly policies, which has put pressure on Democrats to reconsider their positions on crypto regulation to avoid losing votes from the crypto crowd.
Biden did ultimately veto SAB-121, but the split among Democrats, as well as the SEC’s recent approval of spot Bitcoin and Ether exchange-traded funds, and the passing of three crypto-related bills, has led some analysts to suggest that the party may be easing its approach to appease pro-crypto voters and gain the support of the crypto-backed super PACs.
Key US crypto legislation to watch
With cryptocurrencies becoming more mainstream, US lawmakers have been strongly encouraged to create a clear and comprehensive regulatory framework for this rapidly evolving industry.
FIT21 Act
The Financial Innovation and Technology for the 21st Century Act (FIT21) is the first federal bill specifically focused on cryptocurrencies to pass one chamber of Congress. It provides a comprehensive and clear regulatory framework, giving the CFTC greater regulatory authority for digital assets over the SEC.
Ranking members of the Democratic Party said they would not whip Democrat votes against FIT21 despite the party’s belief that it creates uncertainty and undermines established legal precedents in its current form. FIT21 received “overwhelming bipartisan support” in the House on May 22, passing with a vote of 279 to 136.
Former House Speaker Nancy Pelosi was one of the votes in favor of FIT21. When she was speaker, she accepted donations on behalf of the House Majority PAC from ex-crypto king Sam Bankman-Fried before his arrest in 2022. Sources for the American Prospect confirmed she was considering the motion days before the vote took place.
In addition to FIT21, Congressman John Rose (R-TN) introduced the BRIDGE Digital Assets Act to Congress on September 12. This bill seeks to establish a joint advisory committee consisting of members of the SEC and CFTC. It was referred to the Committee on Financial Services and the Committee on Agriculture. The House’s next session is scheduled for November 12 to 21.
Some lawmakers are urging Congress to hold a Senate vote for FIT21 ahead of the November election, although this has been opposed by the president and the SEC.
Responsible Financial Innovation Act
For opponents, the Responsible Financial Innovation Act offers an alternative approach. The bill was a bipartisan effort that was reintroduced by Senators Cynthia Lummis (R-WYO) and Kirsten Gillibrand (D-NY) in July 2023. It has since been referred to the Committee on Banking, Housing and Urban Affairs.
The Act is similar to FIT21; however, there are also some differences between the two bills in terms of their specific provisions and approaches. For example, FIT21 places a greater emphasis on defining key terms and providing exemptions from duplicative regulations, while the Responsible Financial Innovation Act focuses more on consumer protection and combating illicit finance, goals that align with statements made by the White House.
Digital Asset Anti-Money Laundering Act
While the Responsible Financial Innovation Act seeks to provide a comprehensive framework for regulating digital assets, the Digital Asset Anti-Money Laundering Act aims to address concerns about money laundering and illicit finance in the digital asset space. The bill has 19 sponsors, including Republicans Lindsey Graham (R-SC) and Roger Marshall (R-KS), as well as Warren, a longtime political ally to the current president.
What does Harris think about crypto?
The Democrat’s presidential nominee is Kamala Harris, who is currently serving in the Biden administration as Vice President. This section will discuss Harris’ own positions on crypto alongside those of the Biden administration.
There has been heightened government engagement with the crypto sector under the Biden administration. He has been carefully navigating the crypto industry, aiming to balance innovation and economic growth with consumer protection and regulatory oversight.
In March 2022, Biden signed an executive order outlining a strategy to assess the risks and benefits of cryptocurrencies. It focused on six key areas, including consumer protection, responsible innovation and global competitiveness. The order also addressed the lack of coordination between government agencies by promoting a more unified approach.
Building on this move, the White House released a more detailed framework for responsible digital asset development in September 2022. It expanded upon the key areas identified in the initial executive order and provided further guidance for a coordinated, government-wide approach to managing the risks and harnessing the benefits of digital assets.
It is currently not known whether a Harris administration would enact the crypto policies laid out in Biden’s 2025 budget proposal, which includes measures that prevent investors from immediately selling and repurchasing digital assets, as well as one that would require more traditional reporting methods for digital asset transactions. The budget also includes an excise tax on electricity used to mine cryptocurrencies, which is expected to generate US$10 billion in revenue in 2025 and over US$42 billion over 10 years.
As discussed earlier, the Democratic Party struggled to maintain a unified approach to cryptocurrencies under the Biden administration.
However, crypto Dems have some reasons to be hopeful of a moderate approach under Harris. Harris has ties to the tech industry going back to her time as an Attorney General in California in the 2010s, where she was influential in facilitating an agreement on privacy policies.
In early August, Harris was also publicly backed by crypto platform Uphold board member JP Thieriot, and she has reportedly been meeting with industry officials in the weeks leading up to the August 14 online “townhall” event of crypto Democrats, Crypto4Harris, which does not have ties to the official campaign.
Since then, Harris has shown support for the cryptocurrency industry at multiple events.
What does Trump think about crypto?
In response to the crypto industry’s growing influence in the political sphere, Trump also appears to have shifted toward a supportive stance in recent months. After initial skepticism, his forays into the crypto world include the launch of his second collection of Trump Cards, a non-fungible token (NFT) collection on the Polygon blockchain.
In May, Trump became the first presidential nominee to accept donations in digital currencies, and in June, he advocated on Truth Social for all future Bitcoin mining to be done in the US.
Also in May, Lee Bratcher, founder and president of the Texas Blockchain Council, shared insights with Coindesk on Trump’s interest in crypto, suggesting he may have been influenced by former Republican presidential candidate Vivek Ramaswamy, who was supportive of cryptocurrencies and blockchain technology during his brief campaign.
“Trump looks to Vivek on tech and digital asset policy,” Bratcher said. “When he saw how Vivek captured the Republican voter — and more centrist (voters) than Trump can capture — he’s probably more interested in that (policy).’
Trump appears to be driven by a desire to distinguish himself from political opponents who favor a more active regulatory approach, as well as crypto’s increasing popularity and potential.
In May, he criticized Biden, the Democratic party and Gensler at a dinner for buyers of his NFT cards, telling pro-crypto attendees that they “better vote for Trump” if they want crypto in “any form.”
While he hasn’t explicitly said how he plans to tax digital assets, Trump is a prominent proponent of lower taxes. His administration signed the Tax Cuts and Jobs Act into law in 2017, the largest tax code change made in decades. Provisions within the act are set to expire in 2025, although Trump has said he will make them permanent if he is re-elected. The Congressional Budget Office has estimated that if they become permanent, these tax cuts would deduct billions from the US revenue base annually beginning in 2027.
At a rally in New Jersey in mid-May, Trump promised voters that he would impose further tax cuts, lowering the maximum capital gains tax rate from 20 percent to 15 percent. This would affect crypto assets, as the Internal Revenue Service (IRS) treats cryptocurrencies as property, making transactions subject to capital gains and other taxes.
According to Section 1031 of the tax code, some capital gains taxes can be deferred for like-kind exchanges — in other words, investments that are of the same nature or character, even if they differ in size or value. The IRS concluded in 2021 that only “real property” can qualify for tax deference as like-kind exchanges, excluding swaps of cryptocurrency. However, some attorneys disagree with that classification.
Trump spoke at the 2024 Bitcoin Conference in Nashville on July 27, promising friendly regulations and the creation of a strategic Bitcoin stockpile for the US. A draft of legislation to support a Bitcoin reserve was introduced by Senator Cynthia Lummis (R-Wy) at the event following Trump’s speech. The draft legislation for the reserve fund briefly mentions that it would contribute to reducing the US national debt, but it lacks specific details on how this would be achieved. Trump was notably tight-lipped on the issue during a recent interview with Elon Musk.
It’s worth noting that a special-interest group called Project 2025 has developed a 900 page conservative policy agenda called the Mandate for Leadership that includes strategies to shift the power of the IRS and other agencies toward the executive branch. Additionally, the document recommends that the SEC and the CFTC collaborate to delineate the distinction between digital assets that are classified as securities and those that are considered commodities.
The group was organized by the Heritage Foundation, a conservative think tank that has influenced Republican policies in the past, including during Trump’s presidency.
Investor takeaway
Trump’s statements in recent months suggest a permissive stance toward crypto if he is elected. A Harris administration could be more open and forward-thinking than the cautious approach taken by the current Biden administration, but will likely prioritize careful decision-making.
Most crypto experts advocate for a regulated approach, arguing that increased regulatory efforts have served as an incentive for more serious investors. Ultimately, the outcome of the election will have important implications for the future of crypto regulation and the broader crypto industry.
Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
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