By Dr Anandadeep Mandal
Birmingham Business School, University of Birmingham
The relationship between the US elections and the cryptocurrency market has grown increasingly intertwined as digital assets become more mainstream and significant in the global financial system. As one of the largest and most developed economies, the US plays a critical role in shaping the regulatory landscape for cryptocurrencies, and its political landscape often has a ripple effect on crypto markets worldwide. This detailed analysis explores the ways in which US elections influence the crypto market, focusing on regulatory uncertainty, political narratives, and the evolving stance of political parties and candidates toward digital assets.
Regulatory uncertainty during US elections
One of the primary ways US elections impact the cryptocurrency market is through regulatory uncertainty. Elections, especially presidential ones, bring potential changes to key government agencies that oversee financial markets, such as the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Department of the Treasury. Changes in leadership can result in shifts in how these agencies regulate the cryptocurrency industry.
For example, under the Trump administration, there was a more conservative approach toward digital currencies, with regulatory bodies focusing primarily on enforcing existing securities laws, often leading to legal challenges against companies issuing unregistered tokens or conducting Initial Coin Offerings (ICOs). In contrast, the Biden administration has signalled a more proactive regulatory approach, emphasising consumer protection and tighter control over the use of cryptocurrencies to prevent financial crimes like money laundering and fraud.
Whenever there is a significant election—whether congressional or presidential—the crypto market reacts with volatility due to the uncertainty of future regulatory policies. Market participants, including investors, companies, and developers, may hesitate to make decisions until the political landscape becomes clearer. This uncertainty tends to manifest as price swings in major cryptocurrencies like Bitcoin and Ethereum as well as fluctuations in smaller altcoins.
Impact of Political Narratives on the Crypto Market
Political narratives during US elections can also influence the direction of the cryptocurrency market. Politicians and political parties use their platforms to present their views on various issues, and increasingly, cryptocurrencies are becoming a topic of discussion. Depending on whether a candidate or party takes a favourable or unfavourable stance toward crypto, the market can react accordingly.
- Favourable Narratives: Candidates who express support for blockchain technology, decentralized finance (DeFi), and digital currencies generally create optimism in the crypto market. Politicians like Andrew Yang, who ran in the 2020 Democratic primary, openly advocated for the adoption of blockchain technology and called for clear regulatory frameworks for cryptocurrencies. Such support from a high-profile candidate tends to boost market sentiment, attracting both retail and institutional investors who feel reassured about the long-term prospects of the industry.
- Unfavourable Narratives: On the other hand, politicians who associate cryptocurrencies with criminal activities, environmental concerns, or financial instability can cause bearish trends in the market. For instance, during the 2020 elections, Elizabeth Warren, a Democratic senator, raised concerns about Bitcoin’s environmental impact due to its energy-intensive mining process. Negative rhetoric like this often results in price drops, as it signals the possibility of harsher regulations or outright bans on certain crypto activities.
Furthermore, the rise of Central Bank Digital Currencies (CBDCs) has become part of the political narrative, with some candidates supporting the development of a digital dollar to counterbalance the influence of decentralised cryptocurrencies. This potential competition from government-backed digital currencies can also create uncertainty and volatility within the crypto market.
Party differences in crypto regulation
US elections often reveal stark differences in how political parties approach cryptocurrency regulation. These differences can significantly impact the market, as parties that favour stricter regulation or oppose digital currencies could potentially stifle growth, while those with more progressive views could accelerate adoption and innovation.
- Democratic Party: Generally, the Democratic Party has expressed concerns about the risks posed by cryptocurrencies, such as their potential use in money laundering, terrorist financing, and tax evasion. While some Democrats support innovation in blockchain technology, they are more likely to push for stricter oversight, especially in areas related to consumer protection and financial stability. For instance, members of the Biden administration, like Treasury Secretary Janet Yellen, have voiced concerns about the speculative nature of digital assets and their potential to destabilise traditional financial systems.
- Republican Party: Republicans tend to be more favourable toward deregulation and market-driven innovation, which can benefit the crypto industry. Some Republicans, like Senator Cynthia Lummis, have become outspoken advocates for Bitcoin and decentralised finance, promoting crypto as a way to hedge against inflation and preserve individual financial sovereignty. As the Republican Party generally favours free markets and less government intervention, its victories in elections can be interpreted as bullish signals for the crypto market, where fewer regulatory restrictions may allow for faster growth.
- Bipartisan Efforts: Despite these differences, there is growing bipartisan support for creating clear regulatory frameworks to encourage innovation while protecting investors. Both parties recognise the potential of blockchain technology to revolutionise finance, and there is increasing discussion about how the US can maintain its position as a leader in the global digital economy. However, the specifics of how each party envisions regulating cryptocurrencies differ, which creates both opportunities and challenges for the market.
Market reactions to election outcomes
The crypto market is highly sensitive to election outcomes, often reacting in real-time to developments in the political sphere. During election periods, major cryptocurrencies like Bitcoin and Ethereum often experience heightened volatility, as traders attempt to price in the potential impacts of new political leadership and regulatory changes.
- Presidential elections: The outcome of presidential elections has a significant impact on the overall trajectory of crypto regulation. A pro-crypto president or administration can lead to a surge in market optimism, with investors betting on a more favourable regulatory environment for innovation. Conversely, the election of a more conservative or anti-crypto candidate can trigger a sell-off, as market participants anticipate stricter regulations that could stifle growth.
- Congressional elections: Midterm elections, which determine the makeup of the US Congress, also play a critical role in shaping the crypto market’s future. A Congress dominated by crypto-friendly lawmakers could pave the way for the passage of legislation that promotes innovation and protects digital assets from excessive regulation. On the other hand, a Congress that favours tighter controls on financial markets could introduce more restrictive laws, which may have a dampening effect on the market.
Harris and Trump’s statements on crypto
As the 2024 US elections approach, both Donald Trump and Kamala Harris have made statements regarding cryptocurrencies, highlighting their differing approaches.
Donald Trump has been vocal about his support for cryptocurrencies, particularly Bitcoin. He has promised to turn the US into the “Bitcoin capital of the world” and plans to reduce regulations that he believes hinder the crypto industry. His agenda includes firing the current SEC Chair, Gary Gensler, and halting what he views as antagonistic regulation against crypto, while also positioning Bitcoin as a strategic asset for the US economy.
Kamala Harris, on the other hand, has shown a more moderate stance. While not as crypto-centric as Trump, she has expressed support for investing in digital assets as part of a broader tech-forward economic vision. She emphasises the need for “consistent and transparent” regulations to protect consumers and investors while fostering innovation in both AI and crypto.
Both candidates are engaging with the crypto issue, but Trump’s approach appears more aggressive in embracing the industry, while Harris focuses on balanced innovation and regulatory safeguards.
Long-term outlook for crypto in the US political context
As the cryptocurrency market matures, its role in US elections is likely to become more pronounced. Policymakers and regulators will need to strike a balance between fostering innovation and protecting consumers from risks associated with digital assets. Given the growing interest from institutional investors and the public in crypto, future elections will likely see candidates from both major parties crafting more specific and nuanced positions on cryptocurrencies.
In the long term, the US elections will continue to influence the direction of the crypto market, but the overall trend appears to be one of increasing integration of digital assets into the broader financial system. The challenge for regulators will be to create an environment that supports technological advancement while safeguarding financial stability and consumer interests.
Conclusion
The US elections have a significant impact on the cryptocurrency market, primarily through regulatory uncertainty, political narratives, and shifts in party control. As digital currencies become more integrated into the global financial system, the outcome of US elections will continue to play a pivotal role in shaping the regulatory landscape and influencing market dynamics. Both short-term volatility and long-term market trends are likely to be affected by how political parties and candidates approach cryptocurrency regulation, making the intersection of politics and crypto a critical area of focus for investors and policymakers alike.
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The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.