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Can crypto’s regulatory dreams come true?

Former President Donald Trump is scheduled to speak at the Bitcoin conference in Nashville this weekend — an astounding turn of events for an industry that’s become accustomed to feeling as unwelcome in polite society as marijuana dispensaries, pay-day lenders and adult websites. 

Perhaps even more astoundingly, Vice President Kamala Harris is rumored to be less than infinitely hostile toward digital assets, as well. 

Is crypto on the verge of leapfrogging straight from social outcast to bipartisan darling?

That’s hard to imagine — but it’s also hard to imagine how far it’s already come.

Consider the official platform of the Republican Party, which reads like fan fiction for crypto nerds:

“Republicans will end Democrats’ unlawful and unAmerican Crypto crackdown and oppose the creation of a Central Bank Digital Currency. We will defend the right to mine Bitcoin, and ensure every American has the right to self-custody of their Digital Assets, and transact free from Government Surveillance and Control."

That’s one-half of the US political system saying that crypto is as American as apple pie!

Amazing.

Notably, crypto is addressed under the heading of “innovation” — right where the industry has always aspired to belong — and it’s listed there before AI.

Can crypto really be that high of a priority for Trump?

A healthy level of skepticism is always advisable in politics and not everyone thinks Trump's newfound enthusiasm for crypto is sincere.   

But I mostly buy it: The new Republican Party has convinced Silicon Valley that it’s all-in on tech innovation; Trump himself has received a lot of crypto selling NFTs; and in JD Vance he’s picked a VP who knows enough about crypto market structure to be writing legislation on it.

A candidate for VP who even knows what crypto market structure is is kind of amazing, let alone one who’s writing a bill on it.

Perhaps most amazingly, Vance is said to be working on crypto-friendly legislation because Trump asked him to, as Cody Carbone, chief policy officer at the Digital Chamber, explained to me.

Now that seems like a sincere level of commitment. 

Not that it matters — a dog that’s accustomed to being kicked will love anyone who throws it a bone, whatever their reasons for throwing it. 

So you can understand why much of the industry is feeling euphoric at the prospect of a crypto-friendly Trump administration.

But other than throwing some rhetorical bones, what might a Trump administration actually do for crypto?

Let’s think it through.

We want the moon on a stick

The first and most important item on the crypto industry’s wishlist happens to be the easiest for a new Trump administration to deliver on: Rid us of Gary Gensler.

That happy event should follow a Trump win automatically, as SEC chairs customarily step down when a president from the opposing party takes office.

What happens then, however, might not entirely live up to the crypto industry’s very high hopes.

Unless Ayn Rand is disinterred and appointed as Gensler’s replacement, many crypto tokens will remain securities in the eyes of the SEC — the much-maligned Howey test will remain in force until Congress passes legislation to replace it.

Unlike Gensler, however, a Trump-appointed SEC chair would likely apply Howey only reluctantly.

That alone could lead to some big changes as the crypto industry would likely interpret it as a green light to take more risks — perhaps by letting Americans in on airdrops or restarting initial coin offerings (ICOs).

If so, it will be a test of just how hands-off a pro-crypto SEC chair can be — as much as I’d like to see it, I’m not sure anyone willing to take the top SEC job would also be willing to see a return of ICO mania.

Expectations are similarly high for stablecoins, which would likely see some quick wins as well.

Cody Carbone expects that banks would be green-lit to issue both stablecoins and tokenized deposits “immediately” — a development that could turbocharge both the tokenization of real-world assets and the institutionalization (for better or worse) of crypto. 

There could be scope for disappointment here too, though: Stablecoins are still in need of a formalized KYC regime and it’s not clear what that would look like even in a blue-sky scenario.

Yes, the Republican platform comes out against “government surveillance and control” of crypto transactions — but a Trump administration would presumably be against crypto-abetted money laundering, too.

How to square that circle remains a mystery to me.

Another easy win for the industry would be the repeal of staff accounting bulletin 121 — banks might be free to custody crypto assets before Trump has even walked off the inauguration stage.

(Personally, I’m not sure fractionally reserved banks insured by taxpayers should be custodying cryptocurrency they’d be prone to lose, but that’s just me.)

And that might be about it as far as acts of commission go — but the acts of omission could be even more impactful.

A crypto-friendly administration would mean less-hostile regulators, fewer enforcement actions and less rule-making.

Current enforcement actions like those against Coinbase and Kraken might be dropped or less vigorously pursued, allowing industry money now going to lawyers to be redirected to more productive purposes (like newsletter sponsorships, for example).

“Operation Choke Point” would quietly fade away, allowing banks to treat crypto-related companies like the law-abiding customers they are. 

Big crypto companies like Circle and Kraken would probably have a much easier path to IPO.

And US crypto founders would be less frightened to ask for guidance from the SEC — but they would still have to!

No matter who wins in November, in January there will still be an SEC and it will still think some crypto tokens are securities; there will still be a DOJ that dislikes money laundering; there will still be a Fed making rules about what banks can and can’t do, in crypto or otherwise.

How that all plays out is impossible to predict at this point — although we might have a better idea after Former President Trump speaks in Nashville on Saturday.

Probably not, though — he’ll probably just ad-lib it, as he’s prone to do.

But he’s sure to be saying nice things about crypto and that should be more than enough.

After all, it’s not what you say that people will remember, it’s how you make them feel.

Crypto people are already feeling a lot better.

— Byron Gilliam

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