Trump’s crypto policy: a catalyst for a new boom?

The world of digital assets has responded enthusiastically to Donald Trump’s election as the 47th President of the US, with Bitcoin hitting a new all-time high on election night as its price surged to in excess of USD 75,000, reaching a new all-time high of USD 90,000 this week.

How will Trump’s return to the White House affect Bitcoin and other cryptos? Volatility is likely to remain high in the short term. If Trump, as the newly elected incumbent of 1600 Pennsylvania Avenue, reaffirms his positive stance towards crypto regulation, this could fuel a further spike in prices. However, it is unlikely that we will see any specific measures aimed at promoting the crypto industry in the US until after his inauguration on 20 January 2025. The question is what shape these measures might take?

A strategic Bitcoin reserve for the US

Trump’s election is likely to see the discussion about a strategic Bitcoin reserve for the US pick up new momentum. While Trump himself has never spoken explicitly about such a reserve, he declared in his keynote speech at the world’s biggest Bitcoin conference in Nashville in July 2024 that he wanted to persuade the US to keep the more than 200,000 Bitcoin units that have been confiscated.

Republican Senator Cynthia Lummis is calling for a strategic Bitcoin reserve. According to the corresponding bill, the US should acquire 1 million Bitcoin units within five years, equating to some 5% of the total supply ever made available. Robert F. Kennedy Jr., who has been earmarked for a role in the Trump administration, has expressed similar ideas and is even talking about establishing a Bitcoin reserve totalling 4 million units.

_{Whether food, gold, oil or other assets, the US government has long maintained a wide range of strategic holdings. Source: River.com}

The most crypto-friendly Congress of all time

How likely is it that such a demand will be turned into reality? What can be said is that this scenario has certainly become more likely with Trump’s recent election victory. The prospect of a Bitcoin reserve being established has been made ever greater by an almost certain “Republican sweep”, with the Grand Old Party set to enjoy a majority in both chambers of the US Congress, which is made up of the House of Representatives and the Senate. Should this come to pass, this will significantly increase Trump’s chances of pushing through his pro-crypto plans.

Irrespective of party affiliation, the election results from America’s 50 states reveal that the House of Representatives and the Senate are in future likely to be increasingly controlled by crypto-friendly politicians. In several states, the influence of pro-crypto voters appears to have sealed the fate of some crypto opponents in Congress.

One example of this phenomenon was the outcome of the Senate election in Ohio, where Bernie Moreno (Republican) came out on top against the incumbent Sherrod Brown (Democrat). Thanks to the considerable financial support of crypto companies, Brown has now been voted out of Congress for the first time in more than 17 years. While he was considered one of the most outspoken opponents of crypto, Moreno has publicly spoken out in favour of ending the “war on the crypto industry”.

_{Overwhelming majority of crypto-friendly Members of Parliament, as at 14.11.2024. Source: Standwithcrypto.org}

Decisive change looming at the SEC

The removal of the current Chair of the SEC, Gary Gensler, could represent a significant step in this direction. With his numerous lawsuits against crypto companies and DeFi projects, Gensler has fallen out of favour with the crypto community, who view him as somewhat of a spoilsport. If Gensler does indeed have to clear his desk in the near future and is replaced by a pro-crypto chair, lawsuits such as those brought about by the SEC against Coinbase, Kraken, Binance and Uniswap could soon be a thing of the past. 

Hester Peirce is currently being discussed as a potential alternative to Gensler. She was appointed as a member of the SEC by Trump back in 2018 and is considered the “crypto-mother” of the agency due to her positive stance towards digital assets. Until now, she herself has stressed that she has no desire to take over at the helm of the SEC and would instead like to leave the agency at the end of her term of office in June 2025. Mark Uyeda, another Republican SEC member, might be more likely to step up to the plate. He is also considered a proponent of crypto assets.

Dan Gallagher could represent another viable alternative. He still currently holds the position of Chief Legal Officer at Robinhood. As the most successful fintech broker in equity trading, the US company has now also established itself as a prominent crypto trading platform, making Gallagher appear a suitable successor to fill Gensler’s shoes, at least with a view to future crypto-friendly regulation.

Staking component for Ethereum ETFs

Ethereum ETFs could also benefit from a reorganisation at the SEC. As things stand, these investment vehicles are still prevented from staking the Ether held in the ETFs, which adversely impacts the ETF investors who miss out on the staking income as a result.

_{Inflows and outflows to and from Ethereum ETFs have roughly balanced each other out over recent weeks, but have fallen sharply in terms of volume since the launch. Source: Delphi Digital}

This is one of the main reasons why Ethereum ETFs are currently unattractive for investors. More favourable crypto regulation under Trump could make up for this birth defect that can be attributed to mistakes made by the current SEC leadership.

Revival of crypto tokens

With a pro-crypto government in place, regulation for crypto tokens could also “finally” improve. For fear of sanctions, most crypto projects have either avoided the US or merely launched “worthless” utility and governance tokens that have no real economic link to the underlying business model of the protocol. This has led to a situation in which most tokens have no real, sustainable potential in terms of value appreciation and their prices have thus been in an endless downward spiral since their launch.

This unfavourable environment could be put to a stop. For example, the regulatory view could change in such a way that reputable tokens are not recorded as securities but rather as commodities.

Such a change would be particularly important for DeFi projects, especially for those whose underlying business model appears to have a product-market fit. If the regulatory framework were to make it possible for token holders to participate in the economic return of a DeFi protocol, this would increase the usability of the tokens, making them more attractive investment objects.

From an investor perspective, it is to be hoped that the interpretation of securities law is not stretched too far, as this could give a renewed boost to dubious projects – which the crypto world has long wanted to leave behind.

Making banks crypto-fit at last

More crypto-friendly regulation could also ensure that banks are able to operate on an equal footing when it comes to the institutional custody of digital assets. At present, only large custodian institutions such as BNY Mellon are permitted to hold crypto assets.

This situation would change if the SAB 121 rule, which is well-known in crypto circles, were abolished. SAB 121 requires banks to recognise the digital assets they hold in custody as liabilities on their balance sheet, making the custody business economically unattractive and hardly profitable for these institutions.

The US Congress already voted in favour of lifting the rule back in spring 2024. However, Joe Biden moved to exercise his veto at the time, meaning it remained in place. It is considered unlikely that such a move would be vetoed once more by the self-proclaimed “crypto president” Trump, making the abolition of SAB 121 more likely. This would allow US banks to finally enter the crypto custody business.

Important legal information

_{This publication is intended for information and marketing purposes only, and does not constitute investment advice or a specific individual investment recommendation. It is not a sales prospectus and does not constitute a request, an offer, or a recommendation to buy or sell investment instruments or investment services, or to engage in any other transaction. Maerki Baumann & Co. AG does not provide legal or tax advice. Investors are therefore advised to obtain independent legal or tax advice concerning the suitability of such investments, since their tax treatment depends on the personal circumstances of the investor in question and is subject to change at any time. ­Maerki Baumann & Co. AG holds a Swiss banking licence issued by the Financial Market Supervisory Authority (FINMA). This publication is expressly not intended for persons domiciled in Germany or so-called U.S. persons.}
 

Editorial deadline: 14 November 2024

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