Trump vs Harris – REVISITED!
Who’s Better for Crypto?
Does it really matter?
- September 26, 2024
UPDATE:
29th October 2024
Given the US Presidential Elections are only a week away and following the past three elections, crypto has done very well, we want to revisit how each candidate may affect the crypto industry.
When we released our Trump vs Harris piece a month ago, the odds where in Harris’ favor, both in terms of polling and gambling markets. Both have moved in Trump’s favor, with gambling markets predicting an overwhelming Trump victory (Figure 1), while polling is showing Trump winning the Electoral College 312-226 (Figure 2).
Figure 1 – Polymarket (LHS) and PredicIt (RHS) Betting Market Odds
Source: Polymarket & PredicitIt
Figure 2 – Real Clear Polling National Average Polls (October 29, 2024)
Source: Real Clear Polling
While many view risk assets and namely crypto as a “Trump trade”, we continue to be of the view that the pendulum has swung in favor the crypto industry such that the hostile approach by regulators and most politicians is largely over.
Further, while the fact is that Republicans have been far more supportive of the crypto industry than Democrats, the latter has begun to embrace the sector as it has gained influence, especially amongst younger voters, therefore it’s not so much a Trump v Harris debate, but a when does the fiscal irresponsibility end debate, which many, including us, believe is never.
Please see the original post below, published on 26 September 2024
We have recently had several LPs ask for our views on how each US presidential candidate’s proposed policies will affect the cryptocurrency (“crypto”) market. While we have focused specifically on what each candidate and party has said and done to date, we note that cryptocurrency prices are also influenced by economic policies where they respond positively to lower interest rates and increased liquidity, which both are moving in the right direction for risk assets. Hence, we will avoid the economic policy portion of the debate while noting that neither candidate seems to want to move towards fiscal responsibility.
Further, while this note may come across as partisan in favor of Republicans, this is not our intention. The fact is Republicans have been far more supportive of the crypto industry than Democrats. That said, Democrats as a party have begun to embrace the sector as it has gained influence, especially amongst younger voters.
Donald Trump
Donald Trump is the first President or Presidential candidate to fully embrace crypto. His open support started in May of this year when he was asked by crypto-influencer Malcolm DeGods his views on crypto during a press conference at Mar-a-Lago. Trump acknowledged that the US government has been hostile towards the industry, pushing businesses overseas and would look to embrace and encourage crypto businesses to build and grow in the USA.
Trump then immediately doubled and tripled down, first sending a note on Truth Social that he’s “positive” and “open-minded” to “all things in this burgeoning industry” (Figure 1).
Figure 1 – Trump statement on Truth Social supporting crypto
Source: Truthsocial
Then while speaking at the Libertarian National Convention, he stated “I will support the right to self-custody” meaning the ability to personally hold crypto outside a centralized entity.
Figure 2 – Trump speaking at Libertarian National Party Convention
Source: x.com
Since then, he has continued to court crypto special interest voters by speaking at the world’s largest gathering of Bitcoiners, The Bitcoin Conference (aka Bitcoin Nashville) in July, for example. There he stated that he would make the United States the “crypto capital of the planet” and create a bitcoin “strategic reserve” using the Bitcoin that the government currently holds. He also declared his intention to establish a new presidential advisory council focused on Bitcoin and cryptocurrency regulation, nominate a crypto-friendly Securities Exchange Commission (SEC) chair and block the Federal Reserve (Fed) from creating its own central bank digital currency (CBDC).
He also stated at an early September speech at the Economic Club of New York that “instead of attacking industries of the future, we will embrace them, including making America the world capital for crypto and Bitcoin.”
More recently, he has made multiple suggestions that the US could pay off the US federal debt of $35 trillion with crypto, which is clearly not practical or even possible. But it’s election season.
In terms of the likely executive branch and advisors, Trump has and will likely surround himself with a pro-crypto team. JD Vance, who previously disclosed a sizable Bitcoin holding, has long held a positive stance on crypto, likely shaped by his time working with Peter Theil. Vivek Ramaswamy, who has endorsed Trump and who will likely be part of his team if he wins, has also long been pro-crypto and stated during the Republican Party primary debates that “my view is that most forms of cryptocurrency should be in the category of commodities, not securities”, a positive for the space.
While Trump has not released any specific crypto policy papers, he has made numerous supportive policy statements including:
- Creation of BTC strategic reserve
- Establish a presidential advisory council focused on Bitcoin and cryptocurrency regulation
- Support the right to self-custody
- Nominate a crypto-friendly SEC chair
- Block the Federal Reserve from creating its own central bank digital currency (CBDC)
Overall, Donald Trump has embraced crypto. Whether it’s because he’s a believer (he previously launched his own NFTs and decentralized finance (DeFi) project), it’s financially driven (he accepts donations in many different cryptocurrencies on his website) or it’s to court a decent size, younger voting bloc, it’s working to move the overall political narrative to a supportive industry position while gaining support from industry participants.
Republican Party
The Republican Party has been significantly more supportive of the crypto industry than Democrats. Three of the most vocal Congressman in supportive of the industry have been Patrick McHenry (R-NC), Tom Emmer (R-MN) and Mike Flood (R-NE).
Examples of their pro-industry stance include Republican-led House passage in May 2024 of the Financial Innovation and Technology for the 21st Century Act (FIT21), creating a pathway for cryptocurrencies to be exempt from many securities regulations if they achieve sufficient decentralization. This is a stark contrast to the SEC’s current approach and potentially provides a regulatory framework for the classification of what is and is not a security, versus regulation by enforcement, the SEC’s current approach.
The Republican-led House also passed H.R. 5403, the Central Bank Digital Currency (CBDC) Anti-Surveillance State Act, sponsored by Tom Emmer. The legislation blocks the creation and issuance of a CBDC without explicit congressional authorization, aiming to safeguard Americans’ financial privacy. The bill was opposed by a number of Democrats on the House Financial Services Committee, including Maxine Waters (D-CA).
Further, just this past week, House Republicans formally urged the SEC to rescind “disastrous” Accounting Bulletin No. 121 (SAB 121) after a repeal bill received bipartisan support before being vetoed by President Joe Biden. In a September 23 letter to the SEC, House Financial Services Committee Chair Patrick McHenry, Senator Cynthia Lummis and 40 other politicians claimed that SAB 121 upends custody rules for cryptocurrencies, weakens consumer protections and stifles financial innovation. They also claimed that a proposed rule mandating SEC-reporting entities that custody cryptocurrencies record those holdings as liabilities on their balance sheets — was issued without consulting any “prudent regulators” and that the accounting approach “deviates from established accounting standards.”
Interestingly, long-time Democrats are openly stating that they are supporting Republicans this election cycle driven largely by their stance on the crypto industry. This includes billionaires Marc Andreessen and Ben Horowitz, co-founders of Silicon Valley’s largest venture capital firm Andreessen Horowitz.
Andreessen also founded Fairshake PAC, a super PAC funded by himself, the Winklevoss twins (Facebook and crypto exchange Gemini) and cryptocurrency exchange Coinbase. They announced in August that Defend American Jobs, an arm of the Fairshake PAC network, would spend at least $12 million to defeat Democratic Senate Banking Chair Sherrod Brown (D-OH), who has been one of the most vocal anti-crypto industry politicians.
While you can never remove politicking from politics, this is the first presidential cycle where crypto is an election issue. Republicans have been more supportive of the industry through specific policy positions and legislation, which appears to be paying dividends as crypto industry participants embrace the party, at least for this election cycle.
Kamala Harris
Democrat presidential nominee and current Vice President Kamala Harris has yet to take an official position on the cryptocurrency industry during her brief campaign, making only two vague comments about “digital assets” and “blockchain”.
In late July, Harris advisers approached leading US crypto companies to “reset” relations between the Democratic party and the sector. This was followed up by a “Crypto For Harris” town hall in mid-August that again looked to convince the industry of her support. Unfortunately, neither Harris or any members of her campaign staff turned up at the virtual meeting, although crypto convert Chuck Schumer (D-NY) and billionaire Democrat donor and tech entrepreneur Mark Cuban led the call. It was light on specifics with the only real takeaway that it’s Schumer’s intention to get sensible crypto legislation passed before year end (which seems very unlikely).
Critics have continued to question the Harris campaign’s commitment to crypto given she has said very little publicly about digital assets. Her only public comments to date were on September 22 during a NYC fundraiser where she stated that she would “encourage innovative technologies like AI and digital assets” and on September 25 where she stated, “the United States will recommit to global leadership in the sectors that define the next century and remain dominant in AI and quantum computing, blockchain and other emerging technologies” during a speech at The Economic Club of Pittsburgh.
While there has been little detail, she has many supporters who are pro-crypto and with it becoming a more influential voting bloc, we imagine a hostile stance after claiming she wants to reset relations is an unlikely path forward.
Democrat Party
Democrats have largely been anti-crypto over time, with party leaders Elizabeth Warren (D-MA) and Maxine Waters as two of the most vocal opponents. Elizabeth Warren even made one of her re-election campaign pillars, in her own words, to build an “anti-crypto army”.
Figure 3 – Elizabeth Warren Anti-Crypto Army
Source: Politico
Warren co-sponsored Digital Asset Anti-Money Laundering Act (DAAMLA) in December 2022 whose name has a nice ring to it but has been heavily criticized on both sides of the aisle. Further, the Blockchain Association alongside 80 former national security and military professionals penned a letter to Congressional leaders stating, “risks our nation’s strategic advantage, threatens tens of thousands of US jobs, and bears little effect on the illicit actors it targets.” Republican Senator Roger Marshall, who co-sponsored the bill with Warren, recently withdraw his support for his own bill, meaning it no longer has bipartisan sponsorship. Currently there are 18 congresspeople left supporting the bill, with only one Republican, Senator Lindsay Graham (R-SC).
On the regulatory front under President Biden, the SEC, led by Gary Gensler (with major support from Democrats), has sued numerous cryptocurrency businesses during his time as head of the agency. Most notably, the SEC charged Coinbase in June 2023 with acting as a national securities exchange, broker and clearing agency with respect to transactions in 13 separate cryptocurrencies. The SEC contends that the 13 cryptocurrencies are “securities” under the three-pronged Howey test and thus subject to federal securities laws and in turn the SEC’s enforcement authority. There have been delays in the case, with discovery recently extended an additional four months to February 2025.
Interestingly, last month, the SEC amended a lawsuit it filed against Binance under the same charges of selling unregistered securities, removing several high profiles tokens from the suit including Solana and Polygon. Yet, they have not done the same in the Coinbase lawsuit.
Ironically, when the US government recently sold Bitcoin that was confiscated as part of criminal cases, they used Coinbase to custody and sell Bitcoin.
The litigation follows several failed efforts by the SEC to restrict crypto’s wider adoption, including blocking the approval of Bitcoin spot ETFs, which a federal judge overruled in 2023, paving the way for the new funds to begin trading in January 2024.
There are many who critique the SEC’s “regulation by enforcement” approach given there is no formal legal framework for the industry to operate. Take for example the SEC’s recent charge against Galois Capital. The SEC’s claimed Galois failed to ensure that certain crypto assets held by the private fund that it advised were maintained with a qualified custodian, a violation of the Investment Advisers Act’s Custody Rule. Galois agreed to pay $225,000 as a civil penalty without admitting any wrongdoing.
First, there is uncertainty over the Custody Rule application to digital assets including whether specific digital asset holdings are “securities,” as defined by the Securities Act of 1933. As the SEC has acknowledged on multiple prior occasions, a blockchain token, for example, is not itself a security. But the SEC is aggressively pursuing litigation alleging that tokens and other digital assets were offered and sold as investment contracts, and thus securities, under the US Supreme Court’s 1946 test in SEC v. W.J. Howey, Co., which deemed tracts of Florida citrus groves securities.
Second, given the number and diversity of digital assets, qualified custodians do not necessarily exist for all digital assets. As a result, there is no way an adviser could comply with the Custody Rule for numerous digital assets, even assuming those assets were, as the Galois order summarily characterizes it, “offered and sold as securities.” Galois in its defense stated:
“We used Fireblocks, a non-qualified custodian, as a best-in-class solution to secure our crypto assets. Although Fireblocks was not a qualified custodian, we believed they were the best solution for our needs and, in our opinion, the safest way to secure crypto for our investors at the time. We disclosed our use of Fireblocks in our Form ADV filing with the SEC.”
The case demonstrates the regulation by enforcement approach the SEC has taken to date and clearly demonstrates the divide between those in industry and those doing the enforcement.
Then there is the US government’s Operation Chokepoint 2.0 whose perceived goal is to limit or stop access to the cryptocurrency market, at least in the US. At the time of “launch” in March 2023, the Biden administration was accused of launching a plan that spans multiple agencies to discourage banks from dealing with crypto firms, blocking both traditional banks who would serve crypto clients and crypto-first firms aiming to obtain bank charters. Between March 8 to March 23, 2023, all three domestic banks that provided on/off ramps for the crypto industry were shutdown, Silvergate Bank, Silicon Valley Bank and Signature Bank, with many questioning why Signature was seized given its financial position. Barney Frank, Signature board member and former Democrat Senator from Massachusetts was noted as saying, “I think part of what happened was that regulators wanted to send a very strong anti-crypto message”.
Then this August, the largest domestic bank who serviced the crypto industry, Customer’s Bank, was hit with a Federal Reserve enforcement action, claiming there were holes in their compliance policies. This led to Customer’s Bank de-banking many crypto customers, us included, effectively shutting down the largest domestic crypto on/off ramp. Luckily, there are many more banking partner options than in March 2023, both domestically and globally, as more financial services providers embrace the industry.
Not all Democrats have been against the growing industry. NY Rep. Ritchie Torres has been a vocal proponent of industry growth and sensible regulation while acting as a consistent critic of Gensler and the SEC, writing that “regulation by enforcement had a dreadful day in court” in an open letter to the SEC Chairman after the Ripple v SEC summary judgement in July 2023.
Figure 4 – House Financial Services Committee September 2023 Hearing
Source: x.com
Further, long-time Congressman Chuck Schumer, who at one stage held an anti-crypto stance, has embraced the industry and noted above, spoke on behalf of the Harris campaign at a recent crypto focused town hall. Other vocal supporters include Wiley Nickel (D-NC), French Hill (D-AR) and Ro Khanna (D-CA).
Democrats as a group recently began to formally shift their stance. A group of 14 Democrat members of Congress, led by Wiley Nickel (who was also a speaker at Bitcoin Nashville), sent a letter to the Democratic National Committee (DNC) on July 26, asking for the following:
- Add pro-crypto language to the party platform
- Choose a Vice President who is pro-crypto and knowledgeable about digital assets
- Select a pro-innovation SEC Chair
- Engage in a meaningful way with industry
Figure 5 – Democrat Congresspeoples’ letter to the DNC
Source: x.com
Quite a shift for a once hostile group of policymakers.
Red or Blue? Trump or Harris? Republicans or Democrats?
While neither candidate has provided much detail on how they would facilitate sensible regulation and encourage industry growth, Donald Trump has been much more consistent while also making multiple policy statements that support the crypto industry. Ranging from the creation of a Bitcoin strategic reserve to self-custody to the creation of a presidential advisory council focused on Bitcoin and cryptocurrency regulation, all are very positive for the industry hence his election would likely be a catalyst for cryptocurrency industry growth and token prices.
Harris on the other hand has yet to show her cards, making only two vague statements in her short presidential campaign. While light on detail, given her backers and the fact the crypto voting bloc now has some power, we doubt her proposed policies will be as dire as her current boss and thus believe it will largely be a non-event for the space.
In terms of party, while the Republicans have been and still remain far more pro-crypto than Democrats, numerous high profile and influential Democrat policymakers have changed course over the past six months. This is evidenced by the July 26 letter to the DNC encouraging the party to support the crypto industry. Hopefully sensible regulation and forward policy becomes a bipartisan issue with the US embracing and help grow a potentially powerful industry in a responsible way.
Our conclusion. While Trump may be optically better for the industry, especially out of the gate, we believe the pendulum has swung in favor the crypto industry such that the hostile approach by regulators and some politicians is largely over.
Either way, as managers of a portfolio of liquid, exchange listed cryptocurrencies we believe the set-up from a macro, industry and regulatory perspective is the best it’s been in a long time and look forward to the coming months as liquidity returns to a space that is highly correlated to increasing risk appetite and global flows.
Mark Riccio, CFA
Vikara Capital
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Vikara, in Sanskrit, describes the process of change. Its definition is constantly evolving, changing with economic cycles, technology, and geopolitics. It is a transformation of thought or logic, a modification in the direction of travel, an alteration in action or participation. It is one thing to want change, but another to drive it. We believe in a world where commerce doesn’t need intermediaries. Where people are paid directly for content, time, and effort. Where privacy, data and free speech is given, not something to opt-in for.
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