The stakes are high for crypto market participants who want to secure their interests in a rapidly evolving financial landscape. Perhaps unsurprisingly, this burgeoning industry has already become a major talking point in the US election cycle as crypto-friendly Congressional nominees and a favorable regulatory framework become a focus for voters.
In fact, a recent Harrison Poll survey shows that 21 percent of voters in swing states — 13 percent of whom are pro-crypto compared to 8 percent who are anti-crypto — say that crypto policies are important enough to warrant consideration when they head to the polls. About 14 percent of those surveyed own crypto.
As the crypto narrative continues to intertwine with the US election cycle, the choices made in the voting booth could well determine the trajectory of this transformative technology. The stage is set for a pivotal moment in the crypto industry's history, and the decisions made in the next few months will echo far into the future of finance.
How is the crypto sector influencing the US election?
While the US election is set to impact the crypto market, the reverse is also true — the industry is already influencing lawmakers at both the federal and state levels as voting day approaches.
In December 2023, in order to gain a toehold in the political sphere, a group of three affiliated super political action committees (PACs) backed by prominent figures in the crypto sphere revealed plans to invest a substantial US$78 million with the aim of supporting crypto-friendly candidates in upcoming political campaigns.
Fairshake, one of the group’s three affiliated super PACs, has now raised upwards of US$160 million through donations from major stakeholders, including significant contributions from the Winklevoss twins and companies such as Kraken, Coinbase (NASDAQ:COIN) and Electric Capital Partners. The group reportedly spent around US$10 million on attack ads in an attempt to sway voters against Representative Katie Porter (D-CA) in the race to represent California in the Senate. Porter, who has been outspoken against corporate interests and federal lobbyists, ultimately lost the race.
In January, CNBC reported on lobbying efforts by the Cedar Innovation Foundation, whose backers are unknown. Its aim was to unseat Senate Banking Chairman Sherrod Brown (D-OH) — a crypto cynic. Brown later supported stablecoin legislation tied to a package that included cannabis banking reform, which he has called a “high priority,” but emphasized that crypto bills must have guardrails and consumer protection to secure his vote.
More recently, Politico reported in May that Marc Veasey (D-TX) was persuaded to support pro-crypto policies by billionaire investor and longtime crypto advocate Mark Cuban, who has warned that a rigid stance on the issue could cost the current administration supporters.
How is crypto currently regulated in the US?
The regulatory landscape for the crypto industry in the US is still evolving, and further developments are expected to occur in the coming years. As it stands, various government agenciesemploy diverse strategies to regulate different aspects of the industry, reflecting their unique mandates and objectives.
The US Securities and Exchange Commission (SEC) is the primary regulator of securities in the US and, under Chairman Gary Gensler, who was appointed by President Joe Biden, it has taken the view that many cryptocurrencies constitute securities and are therefore subject to federal securities laws.
The Commodity Futures Trading Commission (CFTC) is the primary regulator of futures and options contracts in the US. It is of the opinion that certain cryptocurrencies, such as Bitcoin and Ethereum, are commodities due to their decentralized nature and the fact that they are not backed by a government or other central authority.
Both regulators have taken action against crypto exchanges for breaking laws. Most notably, the CFTC brought charges against Binance founder Changpeng Zhao for violating the Commodity Exchange Act in March 2023. Meanwhile, the SEC has been involved in litigation against numerous crypto companies for years.
Majority party split on crypto regulation
Democrats appear divided on the best approach to crypto regulation. While some have cited concerns that overregulation could stifle innovation, other representatives, like Senator Elizabeth Warren (D-MA), have advocated for more stringent policies, citing threats to national security without proper money-laundering provisions in place.
That division became evident when a resolution to overturn the SEC’s Staff Accounting Bulletin 121 (SAB-121) passed in the House in early May. The resolution, which requires firms that provide custody for crypto assets to record them as liabilities, was primarily backed by Republicans, who argued it would reduce regulatory burdens, enable crypto innovation and challenge the SEC's evolving guidance on digital asset custody. Opponents said reversing the order would undermine the SEC’s authority, which put the measure in place to protect consumers and investors from fraud.
Despite Biden’s opposition to the resolution and his promise to veto the decision, 11 Democratic senators crossed party lines to vote in favor, including Senate Majority Leader Chuck Schumer. His vote to repeal SAB-121 may have been motivated by Republican nominee Donald Trump's recent support of crypto-friendly policies, which has put pressure on Democrats to reconsider their positions on crypto regulation to avoid losing votes from the crypto crowd.
Biden did ultimately veto SAB-121, but the split among Democrats, as well as the SEC’s recent approval of spot Bitcoin and Ether exchange-traded funds, and the passing of three crypto-related bills, has led some analysts to suggest that the party may be easing its approach to appease pro-crypto voters and gain the support of the crypto-backed super PACs.
Key US crypto legislation to watch
With cryptocurrencies becoming more mainstream, US lawmakers have been strongly encouraged to create a clear and comprehensive regulatory framework for this rapidly evolving industry.
FIT21 Act
The Financial Innovation and Technology for the 21st Century Act (FIT21) is the first federal bill specifically focused on cryptocurrencies to pass one chamber of Congress. It provides a comprehensive and clear regulatory framework, giving the CFTC greater regulatory authority for digital assets over the SEC.
Ranking members of the Democratic Party said they would not whip Democrat votes against FIT21 despite the party’s belief that it creates uncertainty and undermines established legal precedents in its current form. FIT21 received “overwhelming bipartisan support” in the House on May 22, passing with a vote of 279 to 136.
Former House Speaker Nancy Pelosi was one of the votes in favor of FIT21. When she was speaker, she accepted donations on behalf of the House Majority PAC from ex-crypto king Sam Bankman-Fried before his arrest in 2022. Sources for the American Prospect confirmed she was considering the motion days before the vote took place.
Some lawmakers are urging Congress to hold a Senate vote for FIT21 ahead of the November election, although this has been opposed by the president and the SEC.
Responsible Financial Innovation Act
For opponents, the Responsible Financial Innovation Act offers an alternative approach. The bill was a bipartisan effort that was reintroduced by Senators Cynthia Lummis (R-WYO) and Kirsten Gillibrand (D-NY) in July 2023. It has since been referred to the Committee on Banking, Housing and Urban Affairs.
The Act is similar to FIT21; however, there are also some differences between the two bills in terms of their specific provisions and approaches. For example, FIT21 places a greater emphasis on defining key terms and providing exemptions from duplicative regulations, while the Responsible Financial Innovation Act focuses more on consumer protection and combating illicit finance, goals that align with statements made by the White House.
Digital Asset Anti-Money Laundering Act
While the Responsible Financial Innovation Act seeks to provide a comprehensive framework for regulating digital assets, the Digital Asset Anti-Money Laundering Act aims to address concerns around money laundering and illicit finance in the digital asset space. The bill has 19 sponsors, including Republicans Lindsey Graham (R-SC) and Roger Marshall (R-KS), as well as Warren, a longtime political ally to the current president.
What does Biden think about cryptocurrencies?
There has been heightened government engagement with the crypto sector under the Biden administration, amplified by scandals such as the collapse of FTX in November 2022. Just one year earlier, on November 10, 2021, Bitcoin reached US$68,991, which was then its highest price to date. This milestone may have added impetus for politicians to pay closer attention to the industry and consider the potential implications of its rapid growth.
Against that backdrop, Biden has been carefully navigating the crypto industry, aiming to balance innovation and economic growth with consumer protection and regulatory oversight. In March 2022, he signed an executive order outlining a strategy to assess the risks and benefits of cryptocurrencies. It focused on six key areas, including consumer protection, responsible innovation and global competitiveness. The order also addressed the lack of coordination between government agencies by promoting a more unified approach.
Building on this move, the White House released a more detailed framework for responsible digital asset development in September 2022. It expanded upon the key areas identified in the initial executive order and provided further guidance for a coordinated, government-wide approach to managing the risks and harnessing the benefits of digital assets.
Biden's 2025 budget proposal includes measures that prevent investors from immediately selling and repurchasing digital assets, as well as one that would require more traditional reporting methods for digital asset transactions.
The budget also includes an excise tax on electricity used to mine cryptocurrencies, which is expected to generate US$10 billion in revenue in 2025 and over US$42 billion over 10 years. Many Republicans have expressed concerns about the proposed crypto industry taxes and regulations laid out in the budget; for example, they have said crypto mining could be pushed out of the US if the proposed mining taxes are enacted.
What does Trump think about cryptocurrencies?
In response to the crypto industry's growing influence in the political sphere, Trump also appears to have shifted toward a supportive stance in recent months. After initial skepticism, his forays into the crypto world include the launch of his second collection of Trump Cards, a non-fungible token (NFT) collection on the Polygon blockchain.
In May, Trump became the first presidential nominee to accept donations in digital currencies, and in June, he advocated on Truth Social for all future Bitcoin mining to be done in the US.
Also in May, Lee Bratcher, founder and president of the Texas Blockchain Council, shared insights with Coindesk on Trump’s interest in crypto, suggesting he may have been influenced by former Republican presidential candidate Vivek Ramaswamy, who was supportive of cryptocurrencies and blockchain technology during his brief campaign.
“Trump looks to Vivek on tech and digital asset policy,” Bratcher said. “When he saw how Vivek captured the Republican voter — and more centrist (voters) than Trump can capture — he’s probably more interested in that (policy)."
Trump appears to be driven by a desire to distinguish himself from political opponents who favor a more active regulatory approach, as well as crypto's increasing popularity and potential.
In May, he criticized Biden, the Democratic party and Gensler at a dinner for buyers of his NFT cards, telling pro-crypto attendees that they “better vote for Trump” if they want crypto in “any form.”
While he hasn’t explicitly said how he plans to tax digital assets, Trump is a prominent proponent of lower taxes. His administration signed the Tax Cuts and Jobs Act into law in 2017, the largest tax code change made in decades. Provisions within the act are set to expire in 2025, although Trump has said he will make them permanent if he is re-elected. The Congressional Budget Office has estimated that if they become permanent, these tax cuts would deduct billions from the US revenue base annually beginning in 2027.
At a rally in New Jersey in mid-May, Trump promised voters that he would impose further tax cuts, lowering the maximum capital gains tax rate from 20 percent to 15 percent. This would affect crypto assets, as the Internal Revenue Service (IRS) treats cryptocurrencies as property, making transactions subject to capital gains and other taxes.
According to Section 1031 of the tax code, some capital gains taxes can be deferred for like-kind exchanges — in other words, investments that are of the same nature or character, even if they differ in size or value. The IRS concluded in 2021 that only “real property” can qualify for tax deference as like-kind exchanges, excluding swaps of cryptocurrency. However, some attorneys disagree with that classification.
It’s worth noting that a special-interest group called Project 2025 has developed a 900 page conservative policy agenda called the Mandate for Leadership that includes strategies to shift the power of the IRS and other agencies toward the executive branch. Additionally, the document recommends that the SEC and the CFTC collaborate to delineate the distinction between digital assets that are classified as securities and those that are considered commodities.
The group was organized by the Heritage Foundation, a conservative think tank that has influenced Republican policies in the past, including during Trump’s presidency.
Investor takeaway
While Trump’s recent statements and actions suggest a permissive stance toward crypto if he is elected, the Biden administration appears to be taking a more cautious approach.
Most crypto experts advocate for a regulated approach, arguing that increased regulatory efforts have served as an incentive for more serious investors. Indeed, this regulatory push has been a significant catalyst for crypto’s impressive performance over the past seven to eight months. Ultimately, the outcome of the election will have important implications for the future of crypto regulation and the broader crypto industry.
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
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