Trump or Harris? Here is where crypto prices might be headed to after tomorrow
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Americans are flocking to the ballot boxes in a presidential race that according to literarily every poll is on a knife’s edge. Only a handful of counties and issues will decide about the winner. But the outcome will impact every person and every industry across the country and beyond. Crypto-investors are particularly anxious. They could feel an immediate and long-term effect to their net-worth depending on who emerges as the winner.
Bitcoin has been surging over the last couple of months, but that is nothing out of the ordinary for a presidential election year. We have seen the same trend in 2016 and in 2020. Still, commentators were quick to nickname this year’s surge the Trump trade-effect. The reasoning goes like this: Former President Donald Trump has morphed into a crypto-advocate. As the betting markets give him a slight advantage to win, people are buying cryptocurrencies in the expectation that his victory will catapult prices to a new all-time high. This increased demand has in turn driven up the prices for Bitcoin and its peers. But will their prices really climb further after a Trump-win? And what happens if Vice President Kamala Harris clinches the presidency? Will they plunge?
Trump-victory scenario
Trump did a one-eighty on crypto: He went from calling it a “scam” that was threatening the US dollar in 2021 to a Bitcoin enthusiast in 2024. As so often, converts act with most zeal. The former president spoke for almost one hour at the Bitcoin 2024 conference in which he churned out a lot of grand statements. He said he wanted to make the United States "the crypto capital of the planet" and that he intended to position Bitcoin as a global superpower. But there were also some concrete policy proposals, ranging from direly needed (appointing a crypto advisory council to design transparent regulation) to outrageous (promising to free Ross Ulbricht, the founder of the darknet market Silk Road).
Yet other proposals stirred vivid discussions. At the top of the list was Trump’s pledge to create a strategic Bitcoin reserve. This means the US government would not sell any of the Bitcoins it currently owns and would even seek to build a larger stockpile. Paradoxically, the Bitcoins owned by the US today are the ones seized from illegal transactions such as Ross Ulbricht’s Silk Road. Making Bitcoin a national reserve would put the US in company with countries like El Salvador. Setting aside the strategic savvy of a Bitcoin reserve, what effect would it have on crypto-values? Obviously, it would create an immense demand. It would also send a strong signal. If Uncle Sam believes in the future and validity of Bitcoin, why should private investors doubt it? Prices would soar. This logic prompted many Trump trades.
But it is more complex than that. The US government already possesses ca. 2.7% of all Bitcoins in circulation. If it held on to the coins and expanded its share, this would suck much liquidity out of the system for decades to come. Hence, while such a strategic reserve might cause a price hike in the short-term, it would steal the thunder from those crypto-enthusiasts who argue that Bitcoin can be the basis for a future financial system. An asset that is stockpiled cannot be an efficient currency, even less so when its supply is strictly limited as in the case of Bitcoin’s 21 million cap. The long-term effects on the desirability of Bitcoin would be unforeseeable.
Another question mark in the case of a Trump-victory is whether crypto assets would be added to the long list of unnecessarily politicized issues. If Bitcoin becomes too associated with Trump, the pendulum might swing back under subsequent Democratic administrations, especially given the anti-crypto wing’s influence within the party.
So how likely are those Trump proposals to turn into reality? After all, it wouldn’t be the first time promises die after candidates leave the campaign trail. Some dismiss Trump’s newfound love for crypto as a mere tactic to woo a crucial demographic neglected by the Democrats: Young men. Yet there is a reason to believe that a Trump administration would indeed follow through with his proposals, albeit not exactly a reassuring one. The former president recently launched his own crypto-business called World Liberty Financial. Previously he had also raised money by selling NFTs. And the campaigns of both candidates have benefitted from donations in cryptocurrencies. In other words, a pro-crypto stance would align with the Trump family’s financial interests. Another change of heart thus seems unlikely.
Harris-victory scenario
Let us now assume that Vice President Kamala Harris wins the race for the White House. Would crypto-prices slide? Not necessarily. She might not share Trump’s crypto exuberance, but her frequent talking point that “she is not President Biden” certainly applies when it comes to the crypto-sphere. Some Biden-appointees (e.g. Gary Gensler) and some high-ranking Democrats that have his ear (e.g. Sen. Elizabeth Warren) have taken a strong anti-crypto stance, resulting in a confusing regulatory regime with much litigation, oversight issues, and little legal security for the entire industry. Harris is expected to break with that approach. Though she rarely speaks about digital assets or blockchain, her team said she will seek to establish a clear regulatory framework for the cryptocurrency market. Crypto-regulation is definitively not at the top of Harris’ agenda, but her stance does imply a pragmatism that many politicians lack. A welcomed pragmatism.
At the beginning of this year Blackrock has gotten the first Bitcoin spot ETF approved and since then many others have followed. By now, many heavyweights from traditional American finance have skin in the game. And the capital being pumped into the crypto-space is growing steadily and quickly. There is no going back. And there is no good reason not to finally follow others like the EU or UK in establishing clear guidelines on what is allowed and what is not. Hence, even in the case of a Harris victory, it is unlikely crypto-prices will see a significant plunge. Rather, they could rise incrementally should she follow through with her promises.
There is, however, one thing investors and analysts will watch out for in the very near future: Whether SEC Chairman Gary Gensler gets to keep his job. When Trump spoke at Bitcoin 2024 he thundered from the stage that Gensler would be fired. This was the comment that drew the most jubilant cheers from the audience. In a recent interview, Ripple’s CEO Brad Garlinghouse articulated the strong anti-Gensler sentiment prevalent in the crypto-community, calling Gensler’s leadership at the SEC a “reign of terror.” If Gensler stays, the bad blood between him and the industry might curb optimism and breed skepticism about any new Harris policy. The bigger danger is that this feud could slow down regulatory changes, in turn increasing the likelihood of another FTX or Binance. There is no question the meltdown of another major player would deal a blow to crypto-prices.
The presidency matters, but Congress matters more
The coming elections are not only about the presidency. Much of Congress is up for grabs too. Americans will vote for all members of The House of Representatives, as well as a third of the Senate. In many ways this is even more important for the future of crypto than the new resident in Pennsylvania Avenue. In this election cycle crypto-companies are the largest financial contributors. Big Oil and Big Pharma pale in comparison. Coinbase and its peers have poured $119M into federal elections, representing a whopping 48% of all corporate contributions. Most of the money ended up in non-partisan Super PACs that supported pro-crypto candidates across the country, and more importantly attacked crypto-skeptics.
Ultimately, Congress is where laws get passed. Those may not always align with the president’s agenda as was the case when this May the House passed a bill banning the Federal Reserve from issuing a digital dollar. Despite President Biden being supportive, the Republican-led initiative succeeded with bi-partisan support. Thus, if you want to make sense of crypto’s future, don’t just pay attention to how Trump and Harris are doing in the battleground states, but also to those close Congressional races.
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