What the New U.S. Administration Could Mean for Crypto Industry

Summary

WSJ What’s News: What the New U.S. Administration Could Mean for the Crypto Industry

Released on December 29, 2024

In the latest episode of WSJ What’s News, host Charlotte Gartenberg delves into the evolving landscape of the cryptocurrency industry amidst the transition to a new U.S. administration. Titled "What the New U.S. Administration Could Mean for Crypto Industry," the episode features insightful discussions with crypto reporter Vicki Wong and corporate law enforcement expert Dave Michaels from The Wall Street Journal's Washington bureau. This summary encapsulates the key points, discussions, insights, and conclusions drawn during the episode, providing a comprehensive overview for listeners and readers alike.

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Introduction: Setting the Stage

Charlotte Gartenberg opens the show by highlighting the current optimism within the crypto sector. She notes that Bitcoin recently surpassed the $100,000 mark, a milestone that has invigorated crypto executives and enthusiasts alike. The central question posed is how the incoming administration, led by President-elect Donald Trump, might reshape the regulatory landscape for cryptocurrencies and what implications this could have for their integration into financial markets.

Notable Quote:

"The crypto world is jubilant. Earlier this month, Bitcoin traded above $100,000 for the first time." — Charlotte Gartenberg [00:00]

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Current State of the Crypto Industry

Vicki Wong provides a historical perspective on Bitcoin, tracing its origins to the aftermath of the financial crisis. Originally envisioned as a decentralized currency free from government control and third-party intermediaries like banks, Bitcoin has evolved significantly over the years. Wong explains how Bitcoin transitioned from a mere currency to a speculative asset, often compared to digital gold. Despite this comparison, she emphasizes that Bitcoin's role as a store of value against inflation remains unverified.

Notable Quote:

"The new narrative in the crypto world is that Bitcoin is kind of like digital gold, a store of value where it could somehow help you to protect your savings against inflation. However, that has not been substantiated." — Vicki Wong [01:53]

Wong further elaborates on the proliferation of alternative cryptocurrencies (altcoins) following Bitcoin's success. She mentions Ethereum, Sonana, and Dogecoin, among thousands of others, highlighting the diversification within the crypto market. The discussion also touches upon the ongoing debate over whether cryptocurrencies should be classified as securities or commodities, a pivotal issue for regulatory bodies.

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Regulatory Environment Under the Current Administration

Dave Michaels sheds light on the regulatory challenges facing the crypto industry. Under the leadership of SEC Chair Gary Gensler, the Securities and Exchange Commission has aggressively pursued enforcement actions against major crypto exchanges like Coinbase and Binance. The SEC's stance is that most cryptocurrencies outside of Bitcoin qualify as securities, thereby subjecting them to stringent regulatory scrutiny.

Notable Quote:

"When it comes to the issuance and the trading of cryptocurrencies, no one regulates that. It is a completely unregulated market." — Charlotte Gartenberg [04:19]

Michaels explains that despite these efforts, the crypto market remains largely unregulated. The SEC's litigation-driven approach has created an environment of uncertainty and tension between regulators and the crypto industry, which seeks a more favorable and less burdensome regulatory framework.

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Potential Regulatory Shifts Under President-Elect Trump

The episode shifts focus to the potential changes anticipated with Donald Trump's administration. Charlotte Gartenberg discusses Trump's unexpected pro-crypto stance, a significant departure from his previous skepticism towards Bitcoin and other digital currencies.

Notable Quote:

"President elect Donald Trump, who literally was once a big crypto skeptic and called bitcoin a scam against the dollar, started embracing crypto earlier this year." — Vicki Wong [08:30]

Trump has made several commitments aimed at fostering a more crypto-friendly environment:

1. Appointment of Paul Atkins as SEC Chair: Advocated as a potential game-changer, Atkins is expected to adopt a more conciliatory approach towards the crypto industry, possibly moving away from the litigation-heavy strategies of his predecessor.

2. Establishment of a Strategic Bitcoin Reserve: Trump has proposed that the government retain its current stockpile of seized bitcoins and potentially acquire more, positioning Bitcoin as a strategic asset. This move could significantly boost Bitcoin’s value, as government endorsement often leads to increased market confidence and investor interest.

Notable Quote:

"He would set up this so called strategic bitcoin reserve where he would ask the government to keep all of the bitcoins that it has seized from cybercriminals and darknet markets." — Vicki Wong [08:30]

The notion of the government actively purchasing and holding Bitcoin not only serves as a validation of its legitimacy but also signals a robust financial endorsement that could attract institutional investors and mainstream financial institutions to the crypto market.

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Implications for the Crypto Industry

If the Trump administration delivers on its promises, the crypto industry could experience substantial growth and stabilization. A more predictable regulatory environment would likely attract institutional investors who have been hesitant due to the uncertain regulatory landscape. This influx of capital could drive innovation, leading to the development of new cryptocurrency networks and applications within the United States rather than relocating abroad to more crypto-friendly jurisdictions.

Charlotte Gartenberg envisions a scenario where Wall Street becomes more integrated with the crypto industry, facilitating the introduction of a broader range of financial products. Currently dominated by Exchange-Traded Funds (ETFs) holding Bitcoin and Ethereum, the market could expand to include ETFs for altcoins, thereby diversifying investment options and enhancing liquidity in the market.

Notable Quote:

"A more stable and permanent form of regulation would welcome in more institutional investors. It would give like startups that want to create new cryptocurrency networks and applications." — Charlotte Gartenberg [07:31]

However, Vicki Wong cautions that increased mainstream involvement also brings heightened volatility and risk exposure for traditional investors. As more substantial sums flow into the crypto market, price swings could become more pronounced, necessitating robust risk management practices.

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Consumer and Investor Impact

The potential stabilization of the crypto regulatory environment holds significant benefits for consumers and investors. For consumers, it could mean greater access to crypto-based financial products and services, enhancing their ability to leverage digital currencies for everyday transactions. For investors, particularly institutional ones, clearer regulations reduce uncertainty and open avenues for diversified investment strategies within the crypto space.

Vicki Wong points out that relaxed regulations could prevent crypto startups from migrating abroad, thereby fostering a robust domestic industry. This retention of innovation within the U.S. could lead to job creation and technological advancements in the blockchain and cryptocurrency sectors.

Notable Quote:

"Potentially these companies would just stay in the US and helping the industry grow in the US and then the other aspect is the potential proliferation of products." — Vicki Wong [10:51]

Moreover, with the establishment of a strategic Bitcoin reserve, there could be a more stable and supportive environment for Bitcoin holders, as the government's active participation in the market could dampen excessive volatility and promote long-term investment perspectives.

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Concluding Thoughts: Optimism with Caution

As the episode wraps up, Charlotte Gartenberg and her guests express a cautiously optimistic outlook for the crypto industry under the new administration. While the anticipated regulatory easing and government support could catalyze significant growth and mainstream acceptance, they also acknowledge the inherent risks associated with increased market participation and potential regulatory overreach in the future.

Dave Michaels humorously addresses the practical aspects of crypto adoption with a light-hearted query about using cryptocurrency for everyday purchases:

"Can I buy a Big Mac with crypto or no?" — Dave Michaels [11:29]

Vicki Wong responds affirmatively but underscores that broader use cases beyond speculative trading are essential for demonstrating the true utility of cryptocurrencies.

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Conclusion

The episode of WSJ What’s News provides a comprehensive analysis of the potential transformative impact of the Trump administration on the cryptocurrency industry. By exploring regulatory changes, industry reactions, and future implications, the discussion offers valuable insights into how policy shifts could redefine the role of cryptocurrencies in the global financial landscape. For those keen on understanding the intersection of politics and digital finance, this episode serves as an informative and thought-provoking resource.

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Notable Contributors:

• Charlotte Gartenberg: Host, WSJ What’s News
• Vicki Wong: Reporter covering crypto and retail investing
• Dave Michaels: Reporter covering corporate law enforcement, antitrust litigation, and consumer protection
• Production Team: Jess Jupiter (Producer), Michael Cosmides (Supervising Producer), Scott Salloway, and Chris Zinsley (Deputy Editors)

Produced by: Charlotte Gartenberg and Jess Jupiter
Supervising Producer: Michael Cosmides
Assistance from: Deputy Editors Scott Salloway and Chris Zinsley

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For more insights and updates, stay tuned to WSJ What’s News on The Wall Street Journal.

Transcript

[Charlotte Gartenberg]

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[Vicki Wong]

Journey through the heart of Europe on.

[Charlotte Gartenberg]

An elegant Viking longship with thoughtful service.

[Dave Michaels]

Cultural enrichment and all inclusive fares. Discover [e-mail] hey, what's news, listeners? It's Sunday, December 29th. I'm Charlotte Gartenberg for the Wall Street Journal. This is what's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our this week, the crypto industry is feeling confident as political winds seem to be blowing in its favor. But what might the new administration actually do for the industry? And what would that mean for crypto's place in financial markets? Let's get to it. The crypto world is jubilant. Earlier this month, Bitcoin traded above $100,000 for the first time. And crypto execs seem hopeful about a more crypto friendly environment under President elect Trump's administration. Under the current administration, regulators have been trying to police crypto under the leadership of Gary Gensler. The securities and Exchange Commission brought several cases against crypto exchanges like Coinbase and Binance. Crypto enthusiasts are hoping that Trump's new pick to lead the sec, Paul Atkins, will help smooth the road for the now $1 trillion industry. But what changes might we actually see with the incoming administration? And what would that mean for crypto's place in the finance world? Here to walk us through all of what's happening with crypto and its future is reporter Vicki Wong who covers crypto and retail investing, and reporter Dave Michaels, who covers corporate law enforcement, antitrust litigation and consumer protection in the Wall Street Journal's Washington bureau. All right, let's start with Vicky because you report on crypto. Help me understand what cryptocurrency is today. How are people thinking about crypto and what it can do?

[Vicki Wong]

When we talk about that, let's go back to bitcoin. Bitcoin was created in the aftermath mass of the financial crisis as a new kind of currency that will kind of help you to take control of your money from the government and not rely on a third party middleman like a bank. And throughout the years, bitcoin somehow evolved into something else entirely. It started out with this desire to be a currency, but then it got listed exchanges where people can buy and sell bitcoin. And before you know it, it became sort of a speculative asset where the price rises and falls every couple of years. It goes through this boom and bust cycle and people speculate on it, bet on it, hoping that the number will keep going up. So the new narrative in the crypto world is that Bitcoin is kind of like digital gold, a store of value where it could somehow help you to protect your savings against inflation. However, that has not been substantiated.

[Dave Michaels]

Bitcoin is a type of crypto, though. So if I understand Bitcoin, I understand it all. Or what's the bigger hat to understand?

[Vicki Wong]

Yes. So Bitcoin is the very first cryptocurrency. And after the success of bitcoin, all these other entrepreneurs, founders, came onto the scene and started creating these alternative cryptocurrencies, such as Ethereum, Sonana, even the Meme coin, which was created as a joke token, dogecoin. Now you have thousands of alternative cryptocurrencies outside of Bitcoin. And when it comes to the debate between whether cryptocurrencies are securities or commodities, I'm sure Dave will dive into it later. But the current chair of the securities and Exchange Commission, Gary Gensler, has said almost all cryptocurrencies outside of Bitcoin are securities. But the crypto industry believes that a lot of the tokens are commodities that should be under the jurisdiction of the Commodity and Futures Trading Commission.

[Dave Michaels]

That's exactly the question, and it's a good moment to bring in Dave. Dave, who regulates cryptocurrency now, and how do they actually do that?

[Charlotte Gartenberg]

When it comes to the issuance and the trading of cryptocurrencies, no one regulates that. It is a completely unregulated market. But the securities and Exchange Commission has been trying to regulate it for about seven and a half years. The SEC believes that the way that these coins, these digital coins and tokens are issued makes them investment contracts, which is a type of a security. And the SEC has said you should comply with the rules that we enforce. The crypto industry doesn't want that. They say definitely not give us something less than what the SEC imposes on Wall street and on security. So the truth is, today no one regulates it, but the industry has been living under a lot of regulatory pressure and heat last several years.

[Dave Michaels]

Okay, let's talk about Trump's pick to head the sec, Paul Atkins.

[Charlotte Gartenberg]

Well, we know that Paul Atkins is probably going to take a different tack in terms of crypto. So you can think about the way the SEC has approached crypto for the last seven years, as the SEC has sued, filed lawsuits against a lot of projects and exchanges trying to get those entities to follow the SEC's rules. So it's a litigation strategy, if you will. And I think it's reasonable to think is that Paul Atkins is going to, he's going to do the alternative, which is to try to stop litigating, try to reduce the number of enforcement investigations and come up with some kind of a compromise that the industry could live with that might exempt the industry from the SEC's regulations, at least for a while. But at the same time, he has to keep in mind that there are investors and consumers in this market and they need some protections.

[Dave Michaels]

So there's the question mark and the regulatory pressure that crypto is facing. Not the most stable environment for the crypto industry. We have to take a quick break, but when we come back, what a more stable environment for crypto could look like. And if crypto fans are right in their hopes for that future. That's after the break.

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[Dave Michaels]

Dave, if the crypto industry manages to get this more stable environment where, you know, we know who's regulating crypto, we know sort of more of the rules around it. What does that mean?

[Charlotte Gartenberg]

I think it means that the industry is definitely poised for growth. A more stable and permanent form of regulation would welcome in more institutional investors. It would give like startups that want to create new cryptocurrency networks and applications. And then also it would mean that Wall street could like get more involved. Right. We have a limited number of, of mainstream products which are mostly exchange traded funds that hold assets like Bitcoin and Ethereum. So we could see more of those kinds of funds holding other kinds of cryptocurrencies, the altcoins, the alternative coins. And that would put a lot more wind behind the sails of the industry.

[Dave Michaels]

There is lots of excitement in the crypto world over Trump's coming presidency. Vicki, are they right to be pumped?

[Vicki Wong]

Yeah. So President elect Donald Trump, who literally was once a big crypto skeptic and called bitcoin a scam against the dollar, started embracing crypto earlier this year. He sort of became the first ever pro crypto president. He started meeting with crypto industry executives, telling them that he's going to kind of ushering this era of crypto friendly policies and elect people that would help move the industry forward and foster innovation. He also made a series of promises to the crypto industry. One of them is firing the current SEC chair, Gary Gensler on day one. Another important one was he would set up this so called strategic bitcoin reserve where he would ask the government to keep all of the bitcoins that it has seized from cybercriminals and darknet markets. And instead of selling them, he would ask the government to keep them and potentially acquire more. This is something that would really just be very appealing to any bitcoin holders because anytime the US Government announces that it will buy any asset to keep it as part of its strategic reserve, it sort of starts this buying frenzy for all the other countries to start buying this asset.

[Dave Michaels]

Dave, how would the government become a buyer of crypto?

[Charlotte Gartenberg]

There is the fact that the government already owns a stockpile of bitcoin that it has seized through criminal law enforcement cases. And it's possible that that could sort of be the seed round for a bitcoin strategic reserve. But the other idea is that down the road the government would have a major capital gain on whatever bitcoin it buys and it could use that to pay down the national debt. That's the justification for it. Beyond just having the government be a big buyer of bitcoin, that would push up the price for everybody else.

[Dave Michaels]

Assuming the industry gets the more crypto friendly environment they're anticipating under Trump. What does that look like for consumers, for investors, for crypto exchanges? What is that bright crypto future?

[Vicki Wong]

There was this narrative that a lot of the crypto startups had to move abroad because the current regulatory environment has been so difficult for them. So potentially these companies would just stay in the US and helping the industry grow in the US and then the other aspect is the potential proliferation of products. But on the flip side, that also just means that if there is a big swing in token prices, mainstream investors would be more and more involved in the risks going on in the crypto market.

[Dave Michaels]

All right, so before we go, can I buy a Big Mac with crypto or no?

[Vicki Wong]

I think you can do that, but that still doesn't prove its use case that what else can it do besides being this potential payment method and trading asset?

[Dave Michaels]

That was reporter Vicki Wong and reporter Dave Michaels. Vicki Dave, thanks so much for being here.

[Vicki Wong]

Thank you for having me.

[Charlotte Gartenberg]

Thank you.

[Dave Michaels]

And that's it for what's new Sunday for December 29th. Today's show was produced by me and Jess Jupiter with supervising producer Michael Cosmides. We got help from deputy editors Scott Salloway and Chris Zinsley. I'm Charlotte Gartenberg. We'll be back on Monday morning with a new show. Thanks for listening.