The cryptocurrency market in the United States is reportedly on the cusp of a significant deregulation push, fuelled by an intensive lobbying effort and substantial political donations ahead of the November presidential election. Despite numerous predictions of its demise, the digital asset sector has demonstrated remarkable resilience, with its total market capitalisation nearing previous all-time highs.
The cryptocurrency industry has emerged as the largest political donor in the current US election cycle, with contributions exceeding $130 million to date. This figure reportedly surpasses donations from the fossil-fuel industry, with funds directed towards candidates from both major parties. The increased political engagement appears to be yielding legislative results, including the recent passage of a bill in the House of Representatives incorporating several demands from crypto lobbyists. Concurrently, the Senate has reportedly scaled back guidelines issued by the Securities and Exchange Commission (SEC) aimed at protecting cryptocurrency consumers.
The industry's resurgence follows a period of significant turmoil last year, which saw the collapse of several prominent crypto-trading firms, including FTX, and a series of lawsuits filed by the SEC against major blockchain companies. At the time, figures such as tech investor Chamath Palihapitiya declared "Crypto is dead in America," a sentiment echoed by publications including The Wall Street Journal and The Atlantic. However, the market has since rebounded, prompting speculation that a "deregulation-fueled bonanza" could be imminent, regardless of which presidential candidate secures victory.
Industry insiders attribute this rapid comeback partly to a robust political strategy. Beyond the substantial financial contributions, the crypto sector has refined its public relations approach, moving away from the "charm" associated with figures like Sam Bankman-Fried. The industry's new face is reportedly characterised by MBAs, lawyers, and Ivy League professionals, adept at navigating Washington's political landscape. Their core message is a call for normalisation and regulatory clarity, advocating for clear "rules of the road" while highlighting "mundane, inoffensive applications" and condemning fraudsters. Mention of "degens," or degenerate gamblers, who are understood to represent a significant portion of crypto's demand, is reportedly avoided.
A central point of contention in the push for "regulatory clarity" is the classification of digital assets. The SEC currently maintains that most crypto assets should be considered securities. Under US law, a security is defined as an "investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others." This classification would subject crypto operations to the same stringent rules as traditional Wall Street institutions. These rules mandate trading through registered exchanges and require issuers to provide extensive disclosures about underlying companies, enabling investors to make informed decisions.
If crypto assets were universally classified as securities, companies such as Coinbase would likely need to separate their brokerage and exchange services, a requirement currently being tested in an SEC lawsuit against the company. Furthermore, new crypto operations would face a burdensome and costly registration process with the SEC, including the issuance of thorough disclosure documents before public investment. This framework, advocates argue, would significantly reduce the number of "dodgy crypto schemes" lacking sound business models.
However, the crypto industry largely advocates for its tokens to be classified as commodities. Commodities, such as wheat or coffee beans, are interchangeable and can be traded directly between individuals. Proponents argue that many tokens function similarly, being fungible and offering utility beyond mere price speculation, such as acting as "gas" for blockchain interactions or facilitating participation in blockchain governance. The SEC does agree that Bitcoin, unlike most other crypto assets, functions as a commodity due to its lack of a central issuer.
Reclassifying cryptocurrencies as commodities would shift their regulatory oversight from the SEC to the Commodity Futures Trading Commission (CFTC). The CFTC has historically adopted a more favourable stance towards crypto, previously advocating for deregulatory measures supported by entities like the now-defunct FTX. With a significantly smaller budget and staff — approximately one-sixth the size of the SEC — a shift to CFTC oversight would likely result in fewer prosecutions of crypto companies and the disappearance of many pending SEC cases.
Consumer advocacy groups have expressed serious concerns regarding the potential implications of exempting crypto from securities laws. Hilary J. Allen, a law professor at American University specialising in financial regulation, suggests that designating cryptocurrencies as commodities could create a loophole. She argues that non-crypto companies might exploit this by "slap[ping] a blockchain on it" to avoid securities regulation. Dennis Kelleher, CEO of the non-profit Better Markets, contends that the true reason the crypto industry seeks to avoid securities classification is that full disclosure would reveal their financial dangers. He stated that "If you had to fully and truthfully disclose the risks associated with crypto, the people who would engage in crypto would be near none."
In response to such criticisms, the industry often redirects focus to its more conventional applications. Stablecoins, for example, are highlighted for their ability to maintain a fixed value, facilitating instantaneous peer-to-peer transactions, cross-border remittances, and acting as a hedge against inflation. Argentina has reportedly seen increasing adoption of stablecoins. Another promoted application is "decentralized physical infrastructure networks," or DePIN, which use blockchain technology to reward users for contributing public resources like data storage or Wi-Fi.
Despite these efforts to portray a "boring" and legitimate future, the proposed regulatory changes are also anticipated to stimulate some of crypto's more speculative and "degenerate" activities. Current trends in 2024 reportedly include new forms of gambling. Polymarket, a platform facilitating wagers exclusively with crypto, has seen increased popularity, particularly for election betting. "Tap-to-earn" games, such as Hamster Kombat, attract users with token rewards. The website Pump.fun allows individuals to instantly create a memecoin with just a name and image, establishing a market for its trade. Promotional tactics for these tokens have reportedly included individuals engaging in extreme behaviour on livestreams, such as one person apparently using meth and another sustaining burns from fireworks.
Industry leaders, while not foregrounding these casino-like aspects, implicitly acknowledge and even justify speculation. Kristin Smith, CEO of the Blockchain Association, said that "Speculation, taking risks—that’s what fuels the economy." Sheila Warren, CEO of the Crypto Council for Innovation, framed the ability to buy and sell tokens as individuals determining what to do with their own money, stating, "I don’t necessarily know that it’s net positive or negative... I think it’s about the ability of people to determine what they want to do with their own money."
Both leading presidential candidates in the US have engaged with the crypto sector, signaling a potentially favourable environment for deregulation. Donald Trump has declared himself "the crypto president," pledging to establish the United States as "the crypto capital of the planet" and likening crypto to "the steel industry of a hundred years ago." Speaking at a bitcoin conference in Nashville in July, he reportedly promised to fire SEC Chairman Gary Gensler, create a "strategic national bitcoin stockpile," and release American cybercriminal Ross Ulbricht from prison. Mr. Trump has also announced his involvement in World Liberty Financial, a new crypto platform reportedly offering a stablecoin, though its recent launch experienced low demand and outages. His involvement has led some, like Kristin Smith of the Blockchain Association, to state that "It’s clear Trump would be very positive for crypto."
Kamala Harris's position is less defined, but recent statements suggest an openness to the industry. In September, she reportedly committed to fostering "innovative technologies," including "digital assets." She also stated support for regulations that would enable "Black men who hold digital assets to benefit from financial innovation" while ensuring their protection – a framing that implicitly acknowledged past losses among this demographic. These comments could be campaign rhetoric aimed at mitigating pressure from the crypto lobby, but they indicate an attentiveness to the industry's arguments, particularly those concerning opportunity and equity. Should a crypto-friendly Congress pass desired legislation with bipartisan support, a Harris administration might face considerable pressure to enact it.
The overall sentiment suggests that the digital asset market has proved its "indestructibility." The 99Bitcoins website, which has tracked "obituaries" for Bitcoin since 2010, reportedly ceased updating its list this year, with the last entry in April, further underscoring the shift in perception. If the crypto lobby's desired regulatory framework comes to pass, analysts suggest it would clear a path not only for the industry's "respectable" elements but also for "wildcatters and criminals," potentially leading to what some fear could be "the worst" yet to come for retail investors.
