Crypto Industry Prepares for Deregulation Under Trump
Leading up to election day, the cryptocurrency industry found itself at a critical juncture, grappling with a formidable regulatory crackdown that threatened its very existence in the United States. But as the dust settles on the election, the crypto market is looking at a renaissance.
FTX Flags Feds
Under President Biden, the cryptocurrency industry faced significant regulatory challenges. Led in large part by SEC Chair Gary Gensler, the Biden Administration's approach involved increased scrutiny and enforcement actions against crypto firms, with the SEC filing numerous lawsuits alleging violations of securities laws. This regulatory environment was seen as a crackdown on the industry — but, to be fair, some players in crypto weren’t exactly helping themselves.
They really put themselves in the spotlight (and the government’s crosshairs) with the rather catastrophic collapse of the FTX exchange in 2022. To refresh your memory, FTX was once one of the largest and most prominent cryptocurrency exchanges. Its downfall was primarily attributed to fraudulent activities and severe mismanagement by its leadership, including its co-founder Sam Bankman-Fried. The exchange's collapse resulted in significant financial losses for investors and shook confidence in the broader crypto market.
The FTX incident might have been the last straw, but there were also other similar incidents that highlighted the vulnerabilities within the cryptocurrency sector. It all served as a wake-up call for regulators, highlighting the urgent need for stricter oversight and regulatory frameworks to protect investors and ensure market integrity.
A Crypto Crackdown
In response, regulatory bodies (mostly the SEC) ramped up their enforcement actions against crypto firms, generally. They aimed to address the lack of transparency, inadequate consumer protections, and the potential for illicit activities within the industry.
This increased regulatory scrutiny led to a series of civil lawsuits and criminal indictments against various crypto companies and their executives. The SEC filed numerous lawsuits alleging violations of securities laws, while other regulators collaborated to stomp out fraudulent schemes and practices.
After the government crackdown intensified, many crypto companies began exploring opportunities overseas or considered relocating to jurisdictions with more favorable regulatory environments. But their response wasn’t that passive — they also started to mobilize politically.
Crypto Goes Political
The cryptocurrency industry started taking significant actions to influence the political landscape, which they saw as vital to their future viability. Recognizing the existential threat posed by the regulatory environment, crypto players started investing heavily in lobbying efforts and supporting political candidates who were seen as allies.
Their strategy included backing candidates who were sympathetic to crypto and opposing those who were critical, such as Sen. Sherrod Brown, a prominent critic of the industry. The industry formed super PACs and raised over $170 million to support pro-crypto candidates in the 2024 elections, an effort that was unprecedented in scale.
The stakes were high, and the 2024 election results were profound. Of the 58 general-election candidates supported by the crypto-backed super PACs, 54 won their races. This incredibly high success rate shows the effectiveness of the industry's political strategy and its ability to influence electoral outcomes.
The election results are being seen as a turning point for the industry, with Donald Trump's victory serving as a beacon of hope for the beleaguered crypto sector. Many in the crypto world are now optimistic about the prospects of achieving a more supportive regulatory environment under the new administration and Congress.
Trump’s Pro-Crypto Phase
Once a skeptic, Trump had transformed into a proponent of digital currencies, promising to dismantle the regulatory barriers that had stifled innovation.
During his first term as President and in the years following, Trump was notably skeptical about cryptocurrencies. In 2019, he publicly criticized Bitcoin and other digital currencies, labeling them as "not money" and "based on thin air." He expressed concerns about their volatility and potential to facilitate unlawful activities, such as drug trade and other illegal actions. Trump's stance was in line with a broader skepticism among traditional financial regulators and policymakers who viewed cryptocurrencies as a threat to the stability of established financial systems and the U.S. dollar.
However, during the 2024 presidential campaign, Trump made a significant shift toward embracing the crypto industry. This was partly influenced by his sons, Eric and Don Jr., who reportedly introduced him to the potential of digital currencies. This newfound interest culminated in the launch of his own crypto platform, World Liberty Financial (WLFI), which was announced in late September 2024. WLFI is positioned as a decentralized finance (DeFi) money market platform, featuring its proprietary cryptocurrency, $WLFI.
Trump's pivot to a pro-crypto stance was also reflected in his campaign rhetoric, where he promised to transform the United States into the "crypto capital of the planet." This shift was seen as a strategic move to align with the growing influence and financial power of the crypto industry, which had become a significant player in U.S. elections through substantial campaign donations and lobbying efforts.
Promises and Plans
Trump has suggested that his administration will implement policies to support the growth and adoption of cryptocurrencies in the U.S. As part of his campaign promises, Trump vowed to ease regulatory burdens on the crypto industry. He criticized the regulatory approach of SEC Chair Gary Gensler, and pledged to replace him with pro-crypto leaders.
Potential regulatory changes include easing restrictions on crypto and establishing a national bitcoin reserve, akin to a strategic asset stockpile. These measures aim to integrate cryptocurrencies into national economic policy, signaling government endorsement and potentially increasing market stability. By reducing regulatory burdens, the administration could encourage institutional investment and innovation, enhancing the legitimacy of cryptocurrencies. Some speculate that this more supportive environment might stabilize the market by providing steady demand and fostering a more transparent regulatory framework.
Optimists and Pessimists
Following the election and Trump’s victory, the financial markets experienced a significant rally — and crypto in particular. Bitcoin surged to record highs, peaking at $89,000, driven by investor optimism about the incoming administration's crypto-friendly stance. Other cryptocurrencies, such as Dogecoin, also saw substantial gains, reflecting a broader market enthusiasm.
This optimism extended beyond cryptocurrencies, as traditional stock markets also saw gains, with investors anticipating a business-friendly environment under Trump's leadership. The market's response highlighted a belief that the new administration would foster innovation and growth in the digital asset space, potentially leading to more stable and legitimized market conditions.
Of course, many are skeptical. Firstly, there’s the issue of potential conflicts of interest. Trump's personal financial interests in the crypto industry (notably, WLFI) raise concerns as he prepares to return to the White House. This venture, involving his family, targets wealthy investors and could benefit from favorable regulatory changes he might implement. Critics express concern that Trump's financial stake could deter him from enacting stricter protections against fraud, given his past ventures that prioritized personal gain. Ethical questions arise about whether a sitting president can impartially regulate an industry in which he has significant financial involvement, potentially impacting policy decisions.
There are still a lot of unanswered questions and a good bit of uncertainty. But one thing that seems clear is that crypto advocates believe the next four years will offer some respite for digital markets.
Related Resources:
- Cryptocurrency Theft (FindLaw's Learn About the Law)
- Can I Sue Bitcoin Buying or Selling Apps? (FindLaw's Learn About the Law)
- How Does the Law Handle Bad Actors in the Crypto Space? (FindLaw's Courtside)
