Just this past week, Donald Trump, the presumptive Republican nominee, formally became the first major party candidate to accept bitcoin, ether, and other digital currencies as campaign donations, making good on a prior pledge to embrace crypto.
The move came just weeks after Trump declared himself crypto’s candidate at a Mar-a-Lago gala that thrust digital assets into the 2024 campaign and his campaign also later issued a statement saying it would "build a crypto army" to fight the infamous "anti-crypto army" that Senator Elizabeth Warren has campaigned on.
While these events have unsurprisingly prompted many in the crypto community to declare that crypto has now well and truly entered the realm of party politics, the truth is that political pressures have been mounting on bitcoin and the wider digital assets space for some time.
The SEC's political war on crypto
The April 10 news that popular decentralised crypto exchange (DEX), Uniswap had received notice from the SEC that it intends to pursue an enforcement action was the latest in an increasingly long line of civil lawsuits against some of the biggest entities in the industry.
Previously, the SEC came up short in their lawsuit against Ripple on the basis that "programmatic sales” of XRP did not amount to an investment contract and therefore were not deemed to constitute the sale of unregistered securities by the judge. Further, the "wallet as a broker" argument was dismissed in the Coinbase lawsuit, which makes their "frontend DEX as a broker" pursuit of against Uniswap appear increasingly desperate.
Overall, it's becoming increasingly difficult not to form the opinion that the SEC is systematically and maliciously targeting the major entities that comprise the backbone of the industry rather than pursuing their mandate of protecting investors against fraud and financial loss in the cryptocurrency markets.
But why are they behaving this way?
Well, contrary to popular opinion, the SEC is not just an independent agency of the federal government whose job it is to "protect investors." Rather, it is a political entity, which must balance its internal vision of investor protection against a host of competing pressures and constraints. Indeed, many of these constraints come from the White House and Congress themselves through the appointments process, the agency's budget, and more indirect means of persuasion such as the adverse publicity that can follow from oversight hearings and investigative reports (for more see The SEC, Retail Investors, and the Institutionalization of the Securities Markets).
Therefore, perhaps it is not a coincidence that the SEC chair since 2021 Gary Gensler, a Democrat, is also broadly pursuing the anti-crypto positions that have become commonly associated with many of the high-ranking congressional Democrats. And while we cannot know for certain whether a Republican-affiliated SEC would behave in a radically different way, some data suggests that Republican members of congress tend to be more favourable to crypto and focus on its benefits while emphasising the need to ensure regulation does not endanger the US leadership position in the industry.
Figure 1: Republicans drive the debate around crypto and are broadly supportive of the industry
Anti-crypto political agendas are doomed to fail
It is baffling that politicians think people will get on board with their 'anti-crypto' stance and lend them support to help them help us combat the 'moral hazard' of what they view as unregulated magic internet money.
It's exactly the other way around. Most people know if politicians and central bankers want to find the real moral hazard of unrelenting fiscal irresponsibility that continues to run up unsustainable deficits while taxing Main Street into oblivion – both overtly and via inflation – they need only to look in the mirror.
In that context, forcing crypto operators overseas by continuing this crusade against a fledgling industry that can provide exactly the sort of positive entrepreneurial injection the country needs to stimulate economic activity on the current page of history, is perhaps one moral hazard too far.
Furthermore, It would be a mistake to think that others are duplicating the regulatory chaos seen in the US. On the contrary, various jurisdictions across Europe, Asia, and other regions are pressing ahead with providing the industry with the decisive regulatory clarity it needs. And even though the SEC's actions to date do not necessarily represent a death sentence for the future of the crypto industry in the US, it has never been more apparent how badly it needs reform.
That's why the passage of the Financial Innovation and Technology for the 21st Century Act (FIT21) with a 279-136 vote marks the industry's most significant legislative victory to date in the US. FIT21 aims to establish a framework to regulate digital asset customer-serving institutions by establishing clear lines between the SEC and CFTC as well as creating registration regimes to permit them to lawfully serve customers in digital asset markets. Part of the Act is also to clearly define what makes a crypto token a security or a commodity.
The CBDC debate spotlights politicisation of digital currency
The huge news that the SEC officially approved the 19b-4 forms for eight spot Ethereum ETFs arguably should have been overshadowed by the news that Congress voted to prevent the Federal Reserve from issuing a central bank digital currency (CBDC) on May 23rd.
The CBDC Anti-Surveillance State Act seeks to block the FED from continuing efforts toward developing a digital dollar. Republicans expressed concerns that a CBDC could be "used to control Americans".
It is an encouraging development that reflects the evolution of the debate around CBDCs in the US beyond vague notions of "protecting freedoms" to actually assessing the potential risks concerning security, privacy, and financial stability. It also adds weight to the campaign against CBDCs before the government PR campaign (which invariably frames them as overwhelmingly positive without presenting a clear and convincing list of ways they would benefit ordinary citizens) gathers more momentum.
But more importantly, the CBDC debate highlights how a currency issued by a central bank is diametrically opposed to bitcoin's raison d'étre, which is to promote financial sovereignty via peer-to-peer transactions without intermediaries.
Bitcoin and crypto is inherently political, but bi-partisan support is possible
Though both the FIT21 and CBDC bills mentioned above will have to go to the Senate before they can become law, at the very least these small victories both marks a step in the direction of stopping the government's continued assault on operators in the digital assets space and reveals that bipartisan support for the industry is more than just a pipe dream.
But ultimately, as an open, digital, decentralised form of value transfer, bitcoin is inherently political as its creation and adoption challenges traditional financial systems, government controls, and the broader economic status quo. Therefore the very act of using bitcoin can be seen as a political statement in favor of decentralisation and against centralised control.
And it becomes even more political during the current macro climate as it serves as a direct critique of fiscal and monetary policies that have led to the currency debasement and economic instability. By holding Bitcoin, individuals are essentially opting out of traditional economic systems and expressing a preference for an alternative that limits inflationary risks and preserves value over time.
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Disclaimer: The information contained within is for educational and informational purposes ONLY. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision. No commercial relationships or partnerships exist with any of the technology providers, manufacturers, or suppliers herein.
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