How Will Trump's US Election Win Affect the Crypto Industry?

How did the crypto sector influence the US election?

The industry was influential at both the federal and state levels leading up to election day.

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 their political campaigns.

Fairshake, one of the group’s three affiliated super PACs, has now raised upwards of US$200 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 to sway voters against Representative Katie Porter (D) in California’s Senate race in March, which she ultimately lost. The Cedar Innovation Foundation, another super PAC group with unknown backers, reportedly engaged in similar lobbying efforts in January to unseat crypto cynic Senate Banking Chairman Sherrod Brown (D-OH).

Before President Biden withdrew as the Democratic candidate, Republicans were the primary beneficiaries of super PAC support. However, the situation changed almost immediately when Vice President Kamala Harris entered the race, although she remained tight-lipped on the issue for weeks following her nomination.

A new advocacy group, Crypto4Harris — which included billionaire and crypto advocate Mark Cuban and SkyBridge Capital founder Anthony Scaramucci — was quick to throw its support behind Harris, who was perceived as more receptive towards the industry.

At the Democratic National Convention on August 21, an aide to Harris’ team said she would “support policies to expand the industry.” Harris confirmed her position on the issue at a Wall Street fundraiser a month later while emphasizing that consumer protection is an equally paramount part of her “Opportunity Economy” pledge.

Later, at a rally in Erie, Pennsylvania, on October 14, Harris reaffirmed her commitment to supporting the crypto industry, stating that her administration would establish rules for digital assets.

Following this announcement, Chris Larsen, the co-founder of Ripple Labs, donated US$1 million worth of his company’s native tokens XRP to Future Forward, a significant super PAC that’s backing Harris' run. Ripple Labs has been engaged in a years-long battle with the SEC over sales of XRP. Judge Analisa Torres ruled in Ripple’s favor in August, but the SEC reopened the case by filing a motion to appeal on October 2.

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.

What does Trump think about crypto?

In response to the crypto industry's growing influence in the political sphere, Trump shifted toward a supportive stance in the months before the election. 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; and his family's crypto project World Liberty Financial.

In May, Trump became the first presidential nominee to accept donations in digital currencies, and criticized Biden 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.” In June, he advocated on Truth Social for all future Bitcoin mining to be done in the US.

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. The Congressional Budget Office has estimated 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.

Trump spoke at the 2024 Bitcoin Conference in Nashville on July 27, promising friendly regulations and the creation of a strategic Bitcoin stockpile for the US. A draft of legislation to support a Bitcoin reserve was introduced by Senator Cynthia Lummis (R-Wy) at the event following Trump’s speech. The draft legislation for the reserve fund briefly mentions that it would contribute to reducing the US national debt, but it lacks specific details on how this would be achieved. Trump was notably tight-lipped on the issue during a recent interview with Elon Musk.

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.