Cryptocurrency has faced numerous predictions of its demise, often becoming a punchline within the industry itself. Notably, since 2010, the flagship token Bitcoin has been declared “dead” more than 477 times, as recorded by the site 99Bitcoins. The most recent wave of eulogies arose in 2022 when major players like FTX collapsed, prompting the Securities and Exchange Commission (SEC) to launch a series of lawsuits against prominent blockchain firms. “Crypto is dead in America,” declared tech investor Chamath Palihapitiya during an April 2023 episode of the All-In podcast, echoing sentiments expressed in various publications like The Wall Street Journal and The Atlantic, which questioned the future of this technology once again.
Surprising Resurgence
Given this backdrop, it might come as a shock that cryptocurrency is making a robust comeback. The total market capitalization of crypto assets is now nearing the all-time highs recorded in 2021. In a surprising turn of events, the crypto sector has emerged as a significant political donor in the current election cycle, even surpassing contributions from the fossil fuel industry, and supporting candidates from both major parties. In May, the House of Representatives passed legislation that aligned with the objectives of crypto lobbyists, while the Senate has begun to roll back some SEC consumer protection guidelines. Both presidential candidates have shown interest in crypto, suggesting that regardless of the election’s outcome, the market may soon experience a wave of deregulation.
The Politics of Money
So, what accounts for this swift resurgence? A significant part of the answer lies in aggressive political maneuvering. The cryptocurrency industry has invested approximately $130 million to influence congressional races this year alone. Additionally, the sector has refined its messaging. In the aftermath of the FTX scandal, the industry has sought to distance itself from its previous image. The loose, carefree persona associated with figures like Sam Bankman-Fried has been replaced by a more polished approach, emphasizing professionalism and a desire for clear regulations. The current narrative is straightforward: “Make crypto normal. Regulate us, please. We just want to know the rules.”
Shifting Focus
Crypto advocates are now spotlighting practical applications of the technology while condemning the bad actors that have tainted its reputation. They deliberately sidestep the reality of the “degens,” or degenerate gamblers, who significantly contribute to crypto’s demand. However, the unfortunate truth remains that scammers are becoming increasingly brazen, devising innovative methods to exploit retail investors. If the crypto lobby achieves its regulatory goals, it could pave the way not only for reputable businesses but also for those engaging in questionable practices. If you thought crypto posed challenges before, brace yourself; the worst may be yet to come.
The Push for Regulatory Clarity
The crypto industry insists that its primary aim—reflected in its hefty political spending—is to establish a mundane presence within the financial landscape. They seek “regulatory clarity,” a term that, while seemingly innocuous, obscures their true intentions. The industry desires a specific regulatory framework rather than mere clarity. Currently, the SEC considers most crypto assets to be securities, subject to rigorous rules akin to those governing stocks. This means that companies must operate within a tightly regulated environment, providing investors with comprehensive information to make informed decisions.
Commodities vs. Securities
The crypto industry’s main argument for achieving normalcy is the classification of tokens as commodities rather than securities. Commodities—like wheat, coffee, and livestock—are typically interchangeable and can be traded directly among individuals. Crypto advocates argue that tokens exhibit commodity-like characteristics, being fungible and serving practical purposes beyond price fluctuations. For instance, they can be used as “gas” for blockchain transactions or to participate in governance processes. The SEC agrees that Bitcoin fits this commodity classification due to its lack of a central issuer.
If cryptocurrencies were deemed commodities, they would fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC), an agency generally more favorable to the crypto sector. This shift could significantly reduce regulatory scrutiny, as the CFTC has fewer resources and a more lenient stance. As a result, many ongoing SEC cases might vanish, along with the likelihood of prosecutions against crypto companies.
Consumer Risks
Consumer advocates warn that exempting crypto from securities regulations would facilitate easier access to risky digital assets for Americans. Exchanges like Coinbase and Kraken might start offering less established cryptocurrencies, potentially inviting institutional investors like pension funds into the fray. Hilary J. Allen, a financial regulation law professor, suggests that classifying cryptocurrencies as commodities could create a loophole that non-crypto companies might exploit. Dennis Kelleher, CEO of the nonprofit Better Markets, contends that the industry is reluctant to classify tokens as securities because doing so would necessitate disclosing the inherent risks, which might deter potential investors.
Highlighting Use Cases
In response to these concerns, the crypto industry often emphasizes its more stable applications, such as stablecoins used for quick peer-to-peer transactions or decentralized networks that reward users for providing public resources. However, the push for regulatory changes could also invigorate some of the industry’s more speculative initiatives. Platforms like Polymarket, which allows users to place bets with cryptocurrency, are gaining traction, especially during politically charged events like elections. Similarly, “tap-to-earn” games, such as Hamster Kombat, are attracting users with the promise of token rewards, while new sites enable anyone to create and trade memecoins with minimal effort.
A Political Landscape
The current political climate surrounding cryptocurrency is heavily influenced by prominent figures like Donald Trump, who has dubbed himself “the crypto president.” Despite his apparent lack of understanding of blockchain technology, Trump has positioned himself as an advocate for the sector. In July, he pledged to make the U.S. the “crypto capital of the planet” and has proposed ideas such as creating a strategic national bitcoin stockpile. His recent ventures into the crypto space, including involvement with a new platform called World Liberty Financial, have further fueled industry optimism.
Meanwhile, Kamala Harris’s stance on cryptocurrency regulations remains less defined, although her recent comments indicate a willingness to support the growth of digital assets. In September, she expressed a commitment to fostering “innovative technologies” while ensuring protections for investors. This careful framing acknowledges the challenges many individuals have faced within the crypto market, particularly marginalized communities.
Despite the uncertainty surrounding regulatory changes, the resilience of cryptocurrency is evident. The frequency of obituaries detailing its supposed demise has notably declined, hinting at a newfound stability in the market. As the landscape continues to evolve, the future of cryptocurrency remains a focal point of both political and economic discourse.
