Are crypto and the US government inter-connected? Surprisingly or not, the impact of the next US president's views on cryptocurrency plays a bigger role in the future outcome of the elections than you imagined. Federal agencies significantly shape crypto policies, highlighting the collaborative efforts required to establish necessary tasks and goals. With Gen Z and Millennials making up about 40% of eligible voters in 2024, it's most likely the candidate supporting crypto-friendly policies will get the most votes. Will the US elections impact the crypto industry or vice versa? The near future events will likely determine the trajectory of digital currency adoption and its integration into the financial system.

Vice President Kamala Harris and central bank digital currency

Kamala Harris, the current Vice President in the Biden administration, has been nominated as the Democratic Party's presidential candidate.

The Biden administration has significantly engaged with the cryptocurrency sector, attempting to balance fostering innovation and ensuring economic growth while safeguarding consumers through regulatory oversight. In March 2022, President Biden signed an executive order outlining a comprehensive strategy to evaluate the risks and benefits of digital assets. This order focused on six key areas: consumer protection, responsible innovation, and global competitiveness. Additionally, it aimed to address the fragmented approach of government agencies by promoting a more unified strategy. The potential role of a central bank digital currency (CBDC) in complementing existing fiat currencies, enhancing payment options, and facilitating faster cross-border transactions was also highlighted.

The Federal Reserve has been crucial in assessing the advantages and disadvantages of a central bank digital currency (CBDC) and conducting ongoing research into how such a currency might affect the economy and financial stability. Building on this initiative, the White House released a more detailed framework for responsible digital asset holdings in September 2022. This framework expanded on the initial executive order's key areas. It provided further guidance for a coordinated, government-wide approach to managing the risks and leveraging the benefits of digital assets.

Whether a Harris administration would adopt the crypto policies outlined in Biden's 2025 budget proposal remains unclear. These proposals include measures to prevent investors from immediately selling and repurchasing digital assets and requirements for more traditional reporting methods for digital asset transactions. The budget also proposes an excise tax on electricity used in cryptocurrency mining, projected to generate $10 billion in revenue in 2025 and over $42 billion over the next decade.

During Biden's tenure, the Democratic Party faced challenges in maintaining a unified approach to cryptocurrency regulation. Harris has not yet taken a definitive stance on the issue, and the Democratic Party's 2024 Platform does not mention crypto regulation. However, there is cautious optimism among crypto advocates that Harris might take a moderate approach. Harris has longstanding ties to the tech industry, dating back to her time as California's Attorney General in the 2010s, where she played a crucial role in privacy policy negotiations.

In early August, Harris received public support from JP Thieriot, a crypto platform Uphold board member. She has reportedly been engaging with industry officials before the August 14 online "town hall" event organised by Crypto4Harris, a group of crypto Democrats not officially affiliated with her campaign.

Former President Donald Trump and crypto

Donald Trump has recently shifted towards a more supportive stance on cryptocurrencies, marking a significant change from his previous scepticism. This shift is evident in several key actions, including the launch of his second Trump Cards collection, a series of non-fungible tokens (NFTs) on the Polygon blockchain. The Commodity Futures Trading Commission (CFTC) plays a crucial role in regulating futures and options contracts, and its perspective on cryptocurrencies as commodities adds another layer of regulatory oversight.

In May, Trump became the first presidential candidate to accept campaign donations in digital currencies, signalling his growing interest in the sector. By June, he advocated on Truth Social for all future Bitcoin mining in the United States, further highlighting his evolving stance on cryptocurrency.

Lee Bratcher, the founder and president of the Texas Blockchain Council, suggested in an interview with CoinDesk that Trump's change of heart may have been influenced by Vivek Ramaswamy, a former Republican presidential candidate who was a strong proponent of cryptocurrencies and blockchain technology. Bratcher noted, "Trump looks to Vivek on tech and digital asset policy. 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's embrace of cryptocurrency seems driven by a desire to distinguish himself from political rivals who favour stricter regulation and capitalise on the growing popularity of digital assets. During a May dinner with buyers of his NFT cards, Trump criticised President Biden, the Democratic Party, and SEC Chair Gary Gensler, urging attendees to vote for him to see cryptocurrency thrive.

While Trump still needs to detail his plans for taxing digital assets, his history of advocating for lower taxes is well known. His administration signed the Tax Cuts and Jobs Act of 2017, the most significant tax reform in decades. With these provisions set to expire in 2025, Trump has promised to make them permanent if re-elected. He has also proposed further tax cuts, including lowering the maximum capital gains tax rate from 20% to 15%, which would impact cryptocurrency transactions as the IRS treats cryptocurrencies as property.

In late July, Trump spoke at the 2024 Bitcoin Conference in Nashville, promising favourable regulations and proposing a strategic Bitcoin reserve for the US. Following his speech, Senator Cynthia Lummis (R-WY) introduced draft legislation to establish this reserve. However, details on its impact on the national debt remain unclear.

Project 2025, a conservative policy agenda from the Heritage Foundation, has also influenced Trump's approach. The 900-page document outlines strategies to shift power from agencies like the IRS to the executive branch. It suggests collaboration between the SEC and CFTC to clarify the classification of digital assets. It emphasises the importance of national security in the regulation of digital assets.

US crypto regulations

The regulatory landscape for cryptocurrencies in the US is still in flux, with significant changes anticipated in the coming years. Various government agencies currently oversee different aspects of the industry, each reflecting its specific mandates and goals.

In addition to cryptocurrencies, regulatory frameworks for central bank digital currencies (CBDCs) are also being analysed globally. Several countries have studied the risks and benefits of implementing CBDCs, with eleven nations, primarily small island countries, successfully adopting them after extensive studies.

The US Securities and Exchange Commission (SEC), led by Chairman Gary Gensler—appointed by President Joe Biden—serves as the country's chief securities regulator. The SEC has argued that many cryptocurrencies qualify as securities and thus fall under federal securities laws.

On the other hand, the Commodity Futures Trading Commission (CFTC) is the principal regulator for futures and options contracts in the US. The CFTC views specific cryptocurrencies, such as Bitcoin and Ethereum, as commodities due to their decentralised nature and lacking backing from any government or central authority.

The SEC and CFTC have taken legal action against crypto exchanges for violating their respective laws. Notably, in March 2023, the CFTC charged Binance founder Changpeng Zhao with violating the Commodity Exchange Act. Simultaneously, the SEC has been embroiled in litigation with numerous crypto companies over the years, asserting that they have violated securities regulations.

How does crypto shape the presidential election's results?

The upcoming November election is the centre of public attention. The outcome of the current presidential campaign in the US will impact the traditional finance sectors and the global economy. Crypto and the US government are more connected than ever before. Investors and crypto fans closely monitor the candidate's crypto policies, assuming their most crypto-friendly candidates will win the election race.

The global shift and increased demand in crypto adoption have made candidates who previously expressed scepticism about crypto adoption change their minds. Thus, despite his scepticism, Donald Trump recently voiced his support for cryptocurrency by accepting digital currency donations and advocating for a strategic Bitcoin reserve. Kamala Harris from the Democrats has also expressed her support for adopting emerging technologies like cryptocurrency. Such shifts show the upcoming US presidential elections bring a more favourable regulatory environment for cryptocurrencies.

Investor takeaway

The discussion about the connection between crypto and the US government could be ongoing. Trump's recent comments suggest that he may be more lenient toward cryptocurrency if he wins the election. On the other hand, a Harris administration could be more open-minded and innovative than the current Biden administration but would likely take a cautious and deliberate approach.

Most crypto experts support having some regulations in place, arguing that increased regulation has attracted more serious investors. This push for regulation has significantly affected crypto's strong performance over the past several months. Ultimately, the election's outcome will be crucial in shaping the future of crypto regulation and the industry.