Will the US cryptocurrency regulation shift to be more friendly with Trump's election as president?

Written by: Mao Jiehao, Xu Jiayao

In November 2024, Donald Trump was re-elected as the 47th President of the United States with overwhelming advantage in the presidential election, which not only marked a significant milestone in his political career, but also brought about a significant shift in the future possibilities of U.S. cryptocurrency policy.

During his campaign, Trump showed unprecedented support for cryptocurrency. He promised to make the United States the ‘global capital of cryptocurrency’ and put forward a series of policy proposals aimed at promoting the development of cryptocurrency. All of this has brought new hope to the cryptocurrency industry and sparked widespread discussion.

What changes may occur in the cryptocurrency policy in the United States if Trump is re-elected? Under his leadership, will a more relaxed and innovative regulatory environment be created for the cryptocurrency market? This article aims to explore the possible changes in cryptocurrency regulation after Trump’s re-election and the profound impact these changes may have on the cryptocurrency market and the global financial system.

Trump’s Historical Views and Policy Shift on Cryptocurrency

1. Trump’s cryptocurrency policy in his first term

During his first term, Trump’s attitude towards cryptocurrency was quite conservative, even negative.

As early as 2019, he publicly criticized digital currencies such as Bitcoin, believing that they lack “intrinsic value” and that their extreme instability may provide a breeding ground for illegal activities. Trump also specifically warned that virtual currencies could fuel criminal activities such as money laundering and fraud.

Under the leadership of the Trump administration, the US government has strengthened its regulation of cryptocurrencies, especially the regulation of Initial Coin Offerings (ICOs), and the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have also increased their regulation of crypto assets.

2. Trump’s cryptocurrency promises in the 2024 election

However, by 2024, there was a significant shift in Trump’s position. During his campaign, he publicly expressed support for cryptocurrencies and put forward the following policy proposals:

Efforts to make the United States the “global capital of cryptocurrency,” taking measures to reduce regulation and promote technological innovation.

Encourage the expansion of the cryptocurrency industry and promote the market value of digital currencies such as Bitcoin.

Defending the right to mine Bitcoin, believing that it not only contributes to the development of cryptocurrency but also promotes innovation and growth in the energy sector.

Strongly opposed to the issuance of central bank digital currency (CBDC), as it will lead to excessive monitoring of citizens’ financial activities and infringement of personal privacy.

Establish a dedicated cryptocurrency advisory committee to formulate and implement favorable policies.

Dismiss the current SEC chairman and increase support for the cryptocurrency industry.

Propose to establish a ‘national Bitcoin reserve’, to hold Bitcoin as a strategic reserve for the long term, and utilize its appreciation potential.

…

Cryptocurrency market reaction

1. Preliminary Reaction of the Cryptocurrency Market

According to statistics, the cryptocurrency industry raised over $245 million in funding for the 2024 election, primarily to support candidates who advocate for cryptocurrencies. This influx of funds not only demonstrates the industry’s political influence but also brings new perspectives on cryptocurrency policies to the Trump camp. Trump will incorporate support for cryptocurrencies as part of his campaign strategy, aiming to attract young voters and investors. This strategy not only enhances his influence within the Republican Party but also allows him to leverage the substantial political contributions provided by the cryptocurrency industry to strengthen his campaign.

The re-election of Trump has triggered a strong market response. The market sentiment generally believes that the Trump administration will create a more friendly regulatory environment for the cryptocurrency industry. This change indicates that investors are confident in their expectations of Trump’s policies, believing that this policy shift will bring new development opportunities to the industry.

2. Industry insiders’ opinions

Industry insiders generally believe that Trump’s support for cryptocurrency may promote further development of the US cryptocurrency market and enhance the US position in global cryptocurrency competition. Some industry experts point out that Trump’s policies to reduce regulatory burdens and promote technological innovation will provide a more relaxed environment for industries such as cryptocurrency mining and blockchain technology.

However, some analysts have also warned that Trump’s cryptocurrency policy may face legal and regulatory challenges, especially in balancing market innovation with financial security. Despite Trump’s victory, there is still significant division in American society. The Trump administration may face strong opposition from the Democratic Party and other interest groups, which could affect its efforts to promote cryptocurrency policies. The game between the government, traditional finance, and the cryptocurrency market will be an important issue in the coming years.

Potential Challenges and Controversies

Legal and Regulatory Challenges of Policy Implementation

Despite the potential of Trump’s proposed cryptocurrency policy, its implementation may face many legal and regulatory challenges.

First, Trump’s proposed ‘National Bitcoin Reserve’ may conflict with current fiscal policy and financial system. Whether the US Treasury can increase reserves by purchasing Bitcoin also needs approval from Congress.

At the same time, the Fed’s opposition to such policies may become a major obstacle to policy implementation. Fed Chairman Powell has publicly stated that the Fed has no intention of participating in the government’s plan to hoard Bitcoin, and this position may affect the Trump administration’s actual actions in the cryptocurrency field. Nevertheless, Trump may still push for a Bitcoin reserve plan through other means. For example, the Trump administration can direct the Treasury Department to purchase Bitcoin directly using the Exchange Stabilization Fund (ESF) by signing an executive order, thereby bypassing congressional approval.

In addition, Trump plans to promote the development of the cryptocurrency industry on a large scale, especially in terms of financial regulation innovation. However, how this measure will be coordinated within the existing legal framework in the United States remains a major challenge. The interests of traditional financial institutions, regulatory agencies, and the cryptocurrency industry will make policy advancement more complex.

The sustainability of Trump’s policies and social repercussions

Although Trump’s position on cryptocurrency has gained support from some segments of the market, it has also sparked widespread social controversy.

Many Democrats and regulatory agencies believe that Trump’s policies may exacerbate financial market instability and increase systemic risks. Especially against the backdrop of volatile price fluctuations in cryptocurrencies such as Bitcoin, government hoarding of Bitcoin may bring hidden concerns about financial security.

Some critics believe that Trump’s support for cryptocurrency is more about catering to the political bargaining chips of industry leaders, and there are still doubts about whether his policies can be effectively implemented. Industry experts say that although Trump’s policies are full of imagination, ensuring market fairness, investor protection, and financial system stability in practical operation will be an important issue.

In addition, the Trump administration may face pressure from the international community, especially against the backdrop of increasingly stringent global financial regulatory frameworks. Whether the United States can maintain its pace of innovation while strengthening regulation remains a focus of close attention in the global financial markets.

Currently, various states in the United States are seizing the opportunity and setting off a hot wave of Bitcoin reserve legislation. Pennsylvania took the lead in proposing the Strategic Bitcoin Reserve Bill, becoming the first state in the United States to promote the plan at the state level. On December 12, 2024, Texas proposed legislation to establish a strategic Bitcoin reserve by accepting Bitcoin for taxes, fees, and donations and holding these Bitcoins for at least 5 years. The Texas proposal may pave the way for a future national strategic Bitcoin reserve plan in the United States. Other states are also following suit, with Oklahoma and other places having passed laws to protect Bitcoin-related rights. Porter, one of the drafters of the Texas bill, stated that as many as 10 states and 4 countries are currently discussing similar legislation. Oklahoma, Louisiana, Montana, and Arkansas have passed laws to protect Bitcoin mining rights, self-custody rights, running node rights, and peer-to-peer trading rights.

Summary by Mankiw

Trump’s re-election as president has brought new opportunities for US cryptocurrency policy, along with a series of uncertainties.

His policy commitments and market reactions indicate that the cryptocurrency industry will usher in new development opportunities in the next few years, especially in terms of regulatory arrangements and promoting technological innovation. However, all of this is still full of risks and challenges, especially the complex factors of law, regulation, and the international financial system that may be encountered in the process of policy implementation. Investors need to be cautious, and the cryptocurrency industry also needs to continuously adjust its development strategy in the face of policy changes.

In the future, whether the Trump administration’s policies in the cryptocurrency field can become a reality will largely depend on the legislative process in Congress, the game of interests among various parties, and changes in the global economic environment. In any case, the future of the cryptocurrency industry will undoubtedly be full of fluctuations and opportunities, which is worth our continuous attention.