No, a Trump Victory Might Be Bad for Crypto

A response to Politico’s article predicting good times if the ex-POTUS wins re-election.

AccessTimeIconJan 9, 2024 at 9:13 p.m. UTC
Updated Mar 8, 2024 at 7:34 p.m. UTC
AccessTimeIconJan 9, 2024 at 9:13 p.m. UTCUpdated Mar 8, 2024 at 7:34 p.m. UTC
AccessTimeIconJan 9, 2024 at 9:13 p.m. UTCUpdated Mar 8, 2024 at 7:34 p.m. UTC

On Monday, Politico published an article making the case that a Trump victory in 2024 could “turn the tides” in crypto’s favor. “It would mark a major shift from President Joe Biden, whose administration and regulators are consistently taking a skeptical approach to crypto over what they see as risks to consumers and the broader financial system,” staff reporter Jasper Goodman wrote.

Quoting power players including House Majority Whip Tom Emmer and former Comptroller of the Currency Brian Brooks, they make the case that the “anti-establishment” presidential candidate Donald Trump, if he wins, would likely enact policies and strip down regulations to crypto’s benefit.

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Afterall, even without explicitly “aligning” himself with crypto, Trump — who once said cryptocurrencies are “based on thin air,” (but seems happy now to rake in millions from NFTs) — by default would be better than the Biden’s administration’s antagonistic stance.

It’s an obvious point to make, especially considering the Securities and Exchange Commission’s run of lawsuits brought against even established outfits like Coinbase and Kraken, the Department of Justice’s historic settlement with Binance and Biden’s “whole-of-government” approach to wrangling the industry.

What’s less obvious are the ways that a friendlier regulatory outlook could actually do more harm than Gary Gensler, who is on his way out as SEC chair anyway. Although it’s become rote for crypto insiders to decry regulation while calling for clarity, there’s a case to be made that borderless, decentralized and stateless protocols can only become truly borderless, decentralized and stateless through a trial by fire.

And, truth be told, crypto seems to have blown its greatest chance yet to develop serious, widely-available protocols that can withstand threats from malicious actors and nationstates. Instead, these past four years, under pressure from antagonistic authorities across the globe, but especially in the U.S., this decade-and-a-half old industry whiffed on its opportunity to prove exactly how resilient, open and utilitarian blockchain-based technologies can be.

This is clearly an overstatement — bitcoin is trading not far off of $50,000, lest we forget — but not by much. Instead of developing useful tools that can survive, say, a nuclear holocaust, the industry has turned out example after example of exactly why this technology needs to be regulated. Putting aside the major technical failures like the collapse of Terra, or the multi-billion dollar FTX fraud, crypto is overrun with minor scams and exploits.

In what world would allowing more of this activity to continue unchecked be good for crypto?

I’m not quite convinced there are regulatory solutions to systemic issues like fraud; open and permissionless protocols like blockchain and the internet will always be abused and misused. But there is a clear connection between the proliferation of scammers and the amount of capital in crypto (compare the data for the last bull and bear markets, for instance).

A change in sentiment that suggests the U.S. government will ease up on crypto could do a lot to empower bad actors. It might also implicitly give a greenlight to corporations to begin marketing risky financial products to retail consumers again. Has the crypto lending sector really worked out its kinks after the collapse of all of the largest crypto lenders?

To be fair, regulation doesn't have to be a partisan issue, even if supporting crypto is increasingly becoming politicized. Sen. J.D. Vance (R-Ohio), a Trump ally, told Politico that Republicans are looking to prioritize “consumer protections without destroying a very nascent industry.” And, for all we know about how this election cycle will turn out, there could be another four years of Biden, with Gensler promoted to Treasury Secretary, the job he has long coveted.

But I’m a believer in the devil you know. Ideally, developers would entirely tune out politics and build protocols that regulatory enforcers simply cannot touch. Unfortunately, however, instead of becoming inflamed by “Operation Choke Point 2.0” and the regulatory enforcements against DAOs and DeFi to build better protocols, many simply bent the knee.

All of this is based on the idea that open-source development is as collaborative as the name suggests, and that lessons can be shared to progress the entire sector. Some take the idea so far as to believe that, in time, after enough hacks, open protocols could become “unhackable.” It’s like compacting garbage hard enough to end up with a diamond.

So will crypto be better off if Trump is inaugurated again in 2025? It’s worth noting that around the time he won the presidency in late-2016, there were a range of predictions, too. CoinDesk wrote about the Trump transition as “a trial run for smart contracts,” while others were concerned about his negative views on Big Tech.

Funnily enough, ex-NYT columnist Farhad Manjoo wrote about the tech sector’s lamenting of Trump’s win while Politico covered it as a potential financial windfall for tech luminary Peter Thiel. The first thing Politico’s Tony Romm mentioned? Thiel’s bitcoin investments…

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Daniel Kuhn

Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.