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On November 5th, Americans will head to the polls to vote. There has been much debate about what the election's outcome means for digital assets. Despite the uncertainty, we continue to view the outcome as positive regardless of which candidate wins.
The current regulatory framework for traditional financial assets is not suitable for digital assets. Congress has realized this too, as they passed a bill to repeal SAB 121 with bi-partisan support in the House and Senate earlier this year. However, the bill was vetoed by President Biden, continuing the current administration’s hostile approach towards crypto and crypto-related companies. Notably, it was recently reported that Bank of New York Mellon has been given an exemption to SAB 121, allowing them to custody crypto. If current regulations were working, why would the largest custodian in the world need to be exempted? It’s clear that SAB 121 has prohibited financial institutions from providing custody services for crypto and should be repealed. Regardless of which candidate wins in November, this will likely happen with the next administration.
Former President Trump has been very vocal about his support of crypto and his desire to make the U.S. the “bitcoin mining capital of the world,” among numerous other statements supporting digital assets. Many have viewed Trump as the crypto president and fear that Vice President Harris would be an extension of the current Biden administration. We believe that isn’t necessarily true, given Harris’ statements regarding crypto regulation, reports suggesting she may seek a new chairman for the SEC, and conversations with her and her advisors.
The outcome of lower ballot races will be incredibly important as well. If Congress is split, either presidential candidate will struggle to enact their more partisan policies, meaning policy changes will be harder to make. This should be good for risk assets, as the status quo of deficit spending and lower taxes is unlikely to change significantly. Since this initiative already has bi-partisan support, this should not prohibit the establishment of a better legal and regulatory framework for digital assets. It is highly unlikely that Democrats will take the majority in both the House and Senate, but it is more possible that Republicans could. In the event of a Republican-controlled Congress and Harris wins, this would also be positive as Harris would struggle to raise taxes substantially, and deficit spending would continue. If Trump wins and Congress is Republican-controlled, crypto could easily be the best-performing asset class. Deficits would rise, crypto regulation would be implemented, and faith in the dollar could wane longer term if government deficit spending increases even further.
Regulation has been the biggest hurdle to the use case conundrum in the US. We often get asked, “Where are the use cases for crypto?” The simple answer is that it’s not in the U.S. yet. Financial institutions have been unable to custody, trade, or build on public blockchains due to current regulations, with the Bank of New York example above being a clear representation of that. Once financial institutions can comfortably utilize blockchain technology as it was meant to be used, we will see significant opportunities across payments, tokenization, collateral, and a myriad of other use cases. Regardless of the election outcome, we believe that the next 18 months will lead to much-needed crypto regulation and clarity, opening the door for these use cases to come to life.
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