Trump and Cryptocurrency: A Dangerous Political Game
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Trump and Cryptocurrency: A Dangerous Political Game
If the U.S. government grants recognition to Bitcoin and other crypto assets, many in the crypto industry would undoubtedly benefit. However, the sector's primary goal is to bring crypto assets into the mainstream investment world while maintaining as little regulation as possible.
Navigating Web3 tides with focused insightsBy John Cassidy, The New Yorker
Translation: Scott Liu, BitpushNews
In politics, a month can make all the difference. As the once-dull Democratic presidential race has become the Kamala Harris show, Donald Trump’s re-election campaign has turned into the crypto show. After selecting venture capitalist and cryptocurrency advocate J.D. Vance as his running mate, Trump appeared at the Bitcoin 2024 conference in Nashville, promising to establish a strategic bitcoin reserve and make America a global bitcoin superpower. He also pledged to fire Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), a staunch critic of cryptocurrencies who has described the industry as having a “track record of failure, fraud, and collapse.”
The irony is palpable: back in 2019, Trump dismissed bitcoin as valueless. According to CNBC, at the Nashville event, dozens of crypto enthusiasts—including the Winklevoss twins and Kid Rock—each paid $500,000 for private roundtable meetings with the former president. Days later, a company owned by Trump began selling limited-edition gold sneakers emblazoned with bitcoin imagery and the words “TRUMP CRYPTO PRESIDENT,” priced at $500 per pair. (Reports indicate these shoes later sold on eBay for as much as $25,000, with one listing reaching $69,999.)
The cryptocurrency industry has faced turmoil in recent years. In December 2022, Sam Bankman-Fried, founder of the crypto exchange FTX, was arrested for defrauding customers of more than $1.7 billion and was subsequently sentenced to 25 years in prison. In November 2023, Changpeng Zhao, founder and CEO of Binance—the world’s largest crypto exchange—pleaded guilty to failing to combat money laundering and was sentenced to four months in prison.
For the crypto industry, a greater threat comes from Gensler and his insistence that many crypto assets qualify as investment securities, subjecting them to strict investor protection laws and government oversight. The industry has long argued that investing in crypto is more akin to buying commodities like precious metals or brisket—products regulated by the Commodity Futures Trading Commission (CFTC)—rather than falling under the broader jurisdiction of the SEC.
In September 2022, Gensler stated during a speech in Washington that he believed the “vast majority” of crypto tokens were securities, quoting the SEC’s first director, Joseph Kennedy: “The SEC will scare off any enterprise without integrity.” In the following months, the SEC filed lawsuits against several leading crypto firms, including Binance and Coinbase—the largest U.S. crypto exchange—accusing them of operating unregistered securities exchanges and other violations. While the defendants denied wrongdoing and sought to have cases dismissed before trial, in March a federal judge in New York ruled that most of the case against Coinbase could proceed. In June, a judge in Washington, D.C., made a similar ruling regarding Binance. Last December, a federal judge in New York determined that four crypto tokens sold by the South Korean firm Terraform Labs were securities.
The SEC has suffered setbacks on this key issue. In July 2023, a federal court in California ruled that XRP, a token created by San Francisco-based Ripple Labs, was not a security when sold publicly. This past June, the SEC concluded its investigation into Ethereum, the blockchain network second only to bitcoin in size. Overall, however, the SEC has been gaining ground. Dennis Kelleher, president of the public-interest group Better Markets, said: “People in the crypto industry are doubling down on political donations. Their biggest ask is for Congress to declare digital assets non-securities, stripping the SEC of jurisdiction.”
The scale of crypto political spending is staggering. Bloomberg reports that three crypto political action committees (PACs), led by the largest, Fairshake, have raised $170 million from donors including Coinbase, Ripple, and venture capital firm Andreessen Horowitz. These crypto funds have flowed not only into Trump’s presidential campaign but also into House and Senate races. Much of the spending appears aimed at defeating Democratic critics of crypto, including Senator Sherrod Brown of Ohio and Senator Jon Tester of Montana, though some funding has gone to other Democrats as well.
In last week’s primary election for Arizona’s Third Congressional District, Yassamin Ansari, a Democratic member of the Phoenix City Council, defeated Raquel Teran, the former chair of the state Democratic Party, aided by an ad funded by a PAC. Given the influx of crypto money, more than a dozen House Democrats recently co-signed a letter to Democratic National Committee Chair Jaime Harrison, urging the party to adopt a “forward-looking approach toward digital assets and blockchain technology.” Yet the reality remains: the crypto industry’s strongest political supporters are Republicans.
After Trump’s appearance at the recent Bitcoin conference, Senator Cynthia Lummis of Wyoming announced she would introduce legislation to create a “strategic bitcoin reserve” comprising about one million bitcoins. (Another crypto enthusiast, Robert F. Kennedy Jr., is also cheering the idea.) The irony is rich: many in the crypto world portray themselves as libertarians who argue that one of bitcoin’s chief virtues is its independence from government. Now, a Republican senator proposes spending over $60 billion in taxpayer money—based on bitcoin’s current price—to acquire roughly 5 percent of all existing bitcoin.
Trump has put forward a milder proposal: that the U.S. government simply hold onto all bitcoin seized by law enforcement agencies. What economic benefit would that bring? James Angel, a financial economist at Georgetown University, said: “The biggest upside is it gets the maximum number of bitcoin users to vote for Trump.”
If the U.S. government grants legitimacy to bitcoin and other crypto assets, many in the crypto sector would undoubtedly benefit. But the industry’s main goal is clear: to bring crypto into the mainstream investment world while remaining as lightly regulated as possible. Kelleher warns we’ve seen this story before. In 2000, Congress passed the Commodity Futures Modernization Act, effectively exempting certain financial derivatives from regulation—contracts whose values were tied to underlying assets. In the years that followed, the issuance of mortgage-backed derivatives like credit default swaps surged. Many major banks ultimately collapsed financially due to exposure to these instruments. When the housing market crashed, the value of the underlying mortgage securities imploded, bringing down the entire financial system—and ultimately requiring taxpayer-funded bailouts.
Crypto’s strongest counterargument to such risks may be that even if digital asset prices collapse, their impact on the broader financial system has so far been limited. (Between 2021 and 2022, bitcoin lost more than two-thirds of its value.) But as Kelleher points out, that collapse occurred in an environment where regulators insisted on keeping crypto isolated from the financial system. “Imagine,” Kelleher says, “if that crash had happened when crypto was deregulated and fully integrated into and connected with the banking system—with countless derivatives tied to bitcoin’s price, liabilities spread across bank balance sheets. Then we’d be right back in 2008.”
That might be the worst-case scenario. But the bigger point is this: we’ve already seen the dangers of lax financial regulation. Mortgage securities, at least, served a broader social purpose—like expanding homeownership. Even if someone someday discovers a significant societal benefit from crypto assets, they’re unlikely to speak up. But none of this matters to the Mar-a-Lago faithful believer in crypto. He still has campaign funds to raise—and sneakers to sell.
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