Crypto Clash: Biden and Trump take opposing sides as November's presidential race hots up

Insights
• Jun 03, 2024
Crypto Clash: Biden and Trump take opposing sides as November's presidential race hots up

by Ryan Shea

The US was firmly front and centre in the crypto market last month as the two leading candidates in November’s presidential race took opposing sides of the crypto debate.

Donald Trump, who remains the Republican challenger despite being convicted last week for falsifying business records, has been critical of cryptocurrencies in the past describing them as “highly volatile assets based on thin air”. However, over recent weeks he has adopted a much more construction position. After acknowledging that more and more people are embracing the asset class he stated that “if you’re in favour of crypto you’d better vote for Trump”. To reinforce this pro-crypto messaging the Trump team followed up by announcing their campaign would accept donations in cryptocurrency – a first for a major US political party.

Additionally, Trump vowed to commute Ross Ulbricht’s life sentence if elected. Ulbricht was the creator of Silk Road, the online darknet marketplace that allowed its users to purchase drugs amongst other things with Bitcoin. While his prosecution 11 years ago seeded the crypto as a facilitator of illegal activity narrative, it also provided the first testcase of cryptocurrency usage at scale, with total sales estimated to be in the region of $180 million during Silk Road’s two year operation. As a result, the crypto community has always had a soft spot for Ulbricht, especially given the harshness of his sentence, so Trump pledging to release him early was another tick in the Republican box for those positively disposed towards decentralized private money.

Social Crypto Distancing

By choosing to publicly support digital assets, Trump’s clear intention was to distance himself from the Biden administration which is widely perceived as having adopted an unfriendly stance towards crypto as exemplified by the SEC’s – an institution led by Biden-nominated Gary Gensler - controversial regulation-by-enforcement approach.

The most recent illustration of the Biden team’s hostility came when the White House released a statement warning that if a resolution approved by the US House of Representatives seeking to roll back the anti-crypto banking policies being pursued by the SEC was passed that President Biden would veto it.

Unfortunately for Biden his mettle was soon put to the test because despite the White House warning the US Senate voted 60-38 to strike down the SEC’s SAB 121 - the accounting standards rule that would have made it more expensive for financial institutions to get into the crypto custody business.

Given the breadth of support in the Senate, which included several leading Democrats such as Senate Majority leader Chuck Schumer, and the subsequent announcement by the administration that it is “eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets” – optimism rose that Biden would choose not to use his veto. Indeed, following the US House of Representatives approval of the Financial Innovation and Technology for the 21st Century (FIT21) Act for the regulation of crypto assets - with a vote of 279 to 136 in favour - crypto investors started to sense that US politicians were finally warming to crypto and this provided a mid-month boost to prices.

Unfortunately, this optimism proved misplaced, and as the month drew to a close Biden chose to stick to his guns and notified Congress he had vetoed the resolution even in the face of strong cross-party support because, in his view, the resolution “risks undercutting the SEC’s broader authorities regarding accounting practices”. What appeared to be a pivot to a more conciliatory crypto position by the Democrats instead turned out to be a feint. As a result, it seems certain crypto will remain a key area of contention between the two candidates and is likely to feature prominently in the presidential race between now and the November vote.

Biden’s continued negative stance towards crypto is somewhat perplexing. He is behind in the polls and, even more concerning for his re-election chances, is struggling to attract younger voters who historically have tended to lean more Democratic. In an attempt to turn things around, the Biden campaign team last month put out a job advert seeking to hire a partner manger to initiate and manage the day-to-day operations in engaging the internet’s top content and meme pages. Yes, you heard that right! Biden is looking for a meme lord. Undermining this marketing effort by continuing to antagonize the 10-20% of Americans who own crypto assets, the majority of who are in the younger age demographic, makes no political sense. In fact, it may turn out that his continued opposition to crypto costs him the election.

Another ETF ComETH

Prior to the Biden veto, the sense that US politicians were becoming more favourably disposed towards crypto had ETF analysts upping the probability of an ETH version being permitted from around 25-30% to over 75%. The odds further increased in the days following the aforementioned Senate vote, when BlackRock, Grayscale and Bitwise all filed amended 9b-4 forms with the SEC for their proposed spot Ether ETFs – mirroring the exact behaviour that occurred immediately before the SEC gave the go-ahead for spot Bitcoin ETFs back in January. Surging confidence that there would soon be a second spot crypto ETF product in the US, triggered a wave of ETH buying that propelled the second largest market cap cryptocurrency higher by 20%.

It did not take long for the ETH bulls to get the validation they were seeking. As the month drew to a close, the SEC approved 19b-4 forms for Ethereum ETFs, paving the way for these products to be listed as soon as issuers’ S-1 filings (a mandatory registration statement required under the 1933 Securities Act) get approved by the SEC – a process that could take several months, but will likely be expedited given the US presidential election is less than six months away.

While it was not made explicitly clear, the SEC decision suggests US regulators have concluded that ETH is not a security – a long-standing debate that has significant implications for companies seeking to issue such products because securities have a higher regulatory burden. That is, however, with one important caveat – it may only apply to unstaked ETH. Staked ETH, by contrast, which generates a yield for its owner in return for participating in the protocol’s transaction validation process, may well be considered a security because it more closely aligns with the Howey test. Of course, crypto investors did not let this lingering security vs. commodity classification uncertainty quell speculation as to which cryptocurrency may be next to join the spot ETF club in the US. Judged by the comments on social media, Solana appears to be the most likely candidate.

Naysayer Holdouts

Joe Biden was not the only crypto naysayer in the headlines last month. In fact, the detractor club has a prominent new member: Yuval Noah Harari, author of the popular science books Sapiens and Homo Deus. At the BIS Innovation Summit 2004 held in the first half of May, Harari gave a presentation where he stated that...

When I look at Bitcoin as a historian, I don't like it because this is a money built on distrust... The future belongs to electronic money.... It's actually a good idea to give banks and governments the ability to create more and more money in order to build more trust in society.”

A couple of weeks later Harari decided to double-down on his position and took to social media with a short video fleshing out his opposition to Bitcoin, the “currency of distrust”. In the video he claimed that his perspective was one many Bitcoin fans shared. However, his claim was disputed on CT (crypto-twitter) by those who pointed out – correctly in my opinion – that there is a considerable difference between a currency that does not require (or, more accurately minimizes the need for) trust and distrust.

Semantic differences aside Harari’s position is that the whole purpose of money is to create trust between strangers to enable them to pool knowledge and resources and cooperate on shared projects which improves the standard of living for everyone. Somewhat unfortunately for Harari, his video included two gifts to Bitcoiners. To wit,

In the modern age trust in banks and governments increased, so they started to create tons of new money from paper and later, also from electronic data. Today, more than 90% of dollars, yens, euros and other currencies is just data in a computer.”

Upon hearing these words, I decided to replay the video to read the subtitles he helpfully included just to double-check that I had not misheard. The two gifts from the above quote that immediately jumped out to me were the “tons of new money” comment and the acknowledgement that over 90% of fiat money is “just data in a computer”.

Both of these statements are verifiably true as I and others have previously pointed out. But, you know what? Most people do not appreciate these points. Admittedly, after the Covid pandemic fiscal splurge, facilitated by central bank purchases of government debt, the general public is slowly starting to appreciate Harari’s first point about the proclivity of the fiat system to generate new money, which as the last few years have painfully demonstrated is ultimately inflationary. The latter point though is much less widely appreciated because why else do we hear Bitcoin being denigrated for being nothing but “1s and 0s (bits in other words) floating in the ether” (no pun intended) when the vast majority of fiat money is stored in exactly the same format.

By explaining how the current fiat money system operates, Harari is, albeit inadvertently, demolishing two objections often put forward against Bitcoin, a cryptocurrency whose supply is both fixed and finite, and whose digital records, ie the Bitcoin ledger are stored in thousands of locations around the globe.

The more substantive objection to Harari’s perspective is his statement that money requires trust. This is wrong. Finance – the borrowing and lending of funds requires trust because one needs to be confident that money borrowed will be repaid in full - but money per se does not.

Let me explain.

Money evolved out of barter because this early form of economy required what is know as the double coincidence of wants, namely that one person wants to buy what the other person wants to sell at the exact same time – an outcome that is far from assured. Anything able to overcome the double coincidence of wants problem can be considered money and over the millennia many goods have, at one stage or another, been used as money: cows, salt, large stones, beads, shells, tobacco, gold etc. Obviously, some goods constitute better forms of money than others and having studied the evolution of money economists have identified the key characteristics that good money must have: divisibility, portability, durability, uniformity, limited supply and acceptability.

The last two of these characteristics are intimately connected via the store of value. No one would accept money if its future value declined precipitously. Under a fiat money system this means that one must necessarily trust the centralized issuer (the sovereign entity or their agent) to ensure its purchasing power is maintained and not eroded because, for whatever reason, the issuer decides to increase the supply. Bitcoin replaces this trust requirement with logic. One does not need to trust the coder(s) who wrote the Bitcoin source code to make sure that Bitcoin’s future supply is finite because the code is open-source and verifiable by anybody with a computer and an internet connection.

Contrary to Harari’s claim, minimizing the trust requirement for money is not a bad thing but actually a good thing. It makes Bitcoin a superior form of money because it satisfies all of the aforementioned characteristics without having to rely on the continued fiscal probity of governments, something Satoshi pointed out in the Bitcoin white paper one would be ill-advised to do given the historical record.

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