Exclusive Excerpt:
How Politics, Business and Consumers Will Shape the Future of Cryptocurrency
Cryptocurrency lives within the balance of regulation, political will and market dynamics. As digital assets continue to be made available to consumers and industries, understanding the benefits and drawbacks of regulation, the influence of political platforms and consumer demand is essential if we’re ever going to hit the regulatory sweet spot that allows it to thrive sustainably.
High levels of cryptocurrency regulation provide the legal clarity necessary to attract institutional investors. Enhanced consumer protection through regulation, like the EU’s Fifth Anti-Money Laundering Directive (5AMLD), can prevent fraud and maintain the integrity of financial systems in which they participate.
Conversely, lower levels of regulation tend to foster innovation and rapid development. Startups can experiment with novel applications of cryptocurrency-related technologies without higher compliance costs. This research is essential to mitigate problems with current cryptocurrency implementations, such as transactional speed, cost, scalability and interoperability.
“It looks like the only thing more volatile than cryptocurrency in the near term is US policy on cryptocurrency, which is being dynamically driven by powerful advocates on all sides of the debate”
In the US, there’s a political axiom: “Elections have consequences.”
The Republican Party platform has recently favoured a more hands-off approach, most recently voiced through former President Donald Trump. In the last few weeks, Trump, once a vocal skeptic of cryptocurrency, calling it a “scam.” He has since become a believer and has received millions in campaign contributions through cryptocurrency since his campaign began accepting them in May 2024.
At the Libertarian Party convention, Trump announced: “To the nation’s 50 million crypto holders, I say this: With your vote, I will keep Elizabeth Warren and her goons away from your Bitcoin.”
The New York Times reported on 17 July 2024, that Elon Musk, David Sacks and Peter Thiel, powerful cryptocurrency advocates, had pressed Trump to select J.D. Vance as his potential Vice President.
On 6 March 2024, Musk posted on his social media platform, X, “Just to be super clear, I am not donating money to either candidate for US President.” However, on Saturday, 20 July 2024, Trump said during a rally, “But Elon endorsed me the other day and I read – I didn’t even know this – he didn’t even tell me about it, but he gives me $45m a month,” Trump said. “A month! Not $45m – gives me $45m a month!”
Then, in an interview with Jordan Peterson on Monday, 22 July 2024, Musk denied reports that he is making this $45m monthly donation to Trump’s campaign, as the Wall Street Journal reported on 16 July 2024. Musk told Peterson, “I’m not donating $45m a month to Trump. What I have done is I have created a PAC, or Super PAC, whatever you want to call it. I simply call it the America PAC.”
Ultimately, Senator J.D. Vance of Ohio joined the Republican ticket as Trump’s vice-presidential candidate and the Republican Party has framed itself as strongly supporting pro-cryptocurrency industry values.
In contrast, the Democratic Party tends to advocate for stricter regulations to protect consumers and prevent illicit activity. US Senator Elizabeth Warren of Massachusetts has strongly criticised cryptocurrencies, highlighting the risks of fraud and market volatility. After the insolvency and collapse of the then-leading cryptocurrency exchange, FTX, valued at $32bn, SEC enforcement actions against cryptocurrency companies have almost doubled after SEC Chairman Gary Gensler assumed his role in 2021.
In an example of “strange bedfellows,” business industry leaders such as Warren Buffet, Chairman and CEO of Berkshire Hathaway, share similar views, referring to cryptocurrencies, especially Bitcoin, referring to it as “rat poison squared.” Similarly, Jamie Dimon, CEO of JPMorgan Chase, often voices concerns, referring to Bitcoin as a “fraud” and expressing skepticism about its long-term viability and use in money laundering and fraud. This is despite JPMorgan’s involvement in blockchain technology and the development of its own digital currency, JPM Coin.
“Cryptocurrency lives within the balance of regulation, political will and market dynamics. As digital assets continue to be made available to consumers and industries, understanding the benefits and drawbacks of regulation, the influence of political platforms and consumer demand is essential if we’re ever going to hit the regulatory sweet spot that allows it to thrive sustainably”
And yet, with President Biden stepping aside from the 2024 presidential race, there has been a significant shift in the Democratic Party’s stance on cryptocurrency. Democratic leaders like Vice President Kamala Harris can potentially reset the party’s cryptocurrency policy. Crypto advocates within the Democratic party, such as Jake Chervinsky, a prominent crypto lawyer, have called for a more balanced regulatory approach that fosters innovation while protecting consumers. Chervinsky has released a five-point plan that includes engaging with industry leaders, proposing balanced regulatory frameworks and reversing the SEC’s “enforcement-first” approach.
Furthermore, some Democrats have begun to advocate for more industry-friendly policies. For example, recent legislative efforts in the House, supported by a bipartisan coalition of dozens of Democrats, including US Senate Majority Leader Chuck Schumer, have broken with Senator Elizabeth Warren, aiming to integrate crypto trading into federal financial regulations, providing more explicit guidelines and potentially fostering a more stable regulatory environment for digital assets.
It looks like the only thing more volatile than cryptocurrency in the near term is US policy on cryptocurrency, which is being dynamically driven by powerful advocates on all sides of the debate, and the demand for cryptocurrency solutions driven by businesses and consumers.
This topic and further exploration into how cryptocurrency interoperates with gambling and gaming-related industries will be addressed in this week’s SCCG Research Brief, to be published this Thursday 25 July 2024.
