Understanding Potential Alterations to Cryptocurrency by Trump's Administration: Three Possible Methods
Understanding Potential Alterations to Cryptocurrency by Trump's Administration: Three Possible Methods
Bitcoin (BTC dropping by 1.88%) has seen a surge to new record highs post the presidential election, rising approximately 30% and trading around the $90,000 mark. Some investors now predict that Bitcoin could break past the $100,000 barrier before Donald Trump is even sworn in as the next U.S. president.
Obviously, the market is sending a strong message that Trump's election victory is beneficial for cryptocurrencies. But what exactly does this mean in real-world terms? Let's delve deeper into three primary ways that a Trump administration could reshape the future of cryptocurrencies.
Establishing a pro-business climate for cryptocurrencies
During his campaign, Trump pledged to transform the U.S. into the "cryptocurrency capital of the world." This would primarily involve creating a business environment where cryptocurrency companies and investors feel welcome. And this likely means overhauling the existing regulatory framework for cryptocurrencies, which at present is heavily influenced by the Securities and Exchange Commission (SEC).
Given the SEC's critical stance towards cryptocurrencies, this regulatory overhaul has been challenging, if not impossible, for some companies. For instance, consider Coinbase Global (COIN dropping by 1.16%). It has been at odds with the SEC on various cryptocurrency-related issues and has even hinted at moving some of its operations overseas to more cryptocurrency-friendly jurisdictions.
The situation is no different for Ripple Labs, the company behind the XRP (XRP dropping by 5.31%) cryptocurrency token. It too has faced a struggle with the SEC and has been compelled to relocate some of its operations to more welcoming territories. At the same time, the value of XRP continues to lag behind at less than $1, due to regulatory uncertainty.
Look ahead to 2025, and you can expect Congress to approve favorable cryptocurrency legislation. There seems to be a shift in sentiment in Washington, and this legislation has bipartisan support. At the very least, Trump has promised to replace the current SEC chairman, Gary Gensler, with someone more sympathetic towards cryptocurrencies.
Development of a strategic Bitcoin reserve
Another groundbreaking move could be the formation of a strategic Bitcoin reserve. This would require the U.S. to purchase 1 million Bitcoin over the next five years. By the end of this period, the U.S. would own around 5% of the total Bitcoin in circulation, making it a major player in the cryptocurrency arena.
The intriguing aspect is what use could be made of this strategic Bitcoin reserve. It could serve as a contingency resource that could be utilized during extraordinary circumstances to boost the economy. Every so often, the U.S. might even access its Bitcoin holdings to achieve specific economic objectives.
The most exciting concept is to employ the strategic Bitcoin reserve as a tool to chip away at the nation's $35 trillion debt. If the price of Bitcoin increases exponentially, as some investors believe it will, some of these cryptocurrency gains could be utilized to settle the debt. For instance, if Bitcoin ever reaches a value of $1 million, as suggested by Cathie Wood of Ark Invest, the 1 million Bitcoin held by the U.S. would be worth $1 trillion.
Legislation for establishing this strategic Bitcoin reserve (known as the BITCOIN Act of 2024) has already been drafted. It was introduced this summer by Senator Cynthia Lummis (R-Wyoming), while Trump was still campaigning. As soon as Trump clinched the election, Senator Lummis expressed her enthusiasm on social media: "We are going to build a strategic Bitcoin reserve."
Revitalization of the Bitcoin mining industry
Trump has hinted at collaborating with domestic Bitcoin miners to ensure that all future Bitcoin is mined domestically. If you listen to some of Trump's speeches, it's evident that he views Bitcoin mining in a similar light to coal mining: it creates jobs, stimulates economic growth, and can be a lifesaver for rural communities with plentiful energy resources.
So what shape could a new Bitcoin mining initiative take? The speculation is that it would be incorporated into a broader national energy policy initiative. This could involve improvements to the nation's energy grid. Further, it could entail a shift away from prioritizing clean energy for the energy-intensive Bitcoin mining process. As a result, the cost of generating new Bitcoin could decrease. Should this occur, Bitcoin mining stocks could experience strong gains in 2025.
How plausible are these pro-cryptocurrency policies?
Please keep in mind: Election promises may not always be realized. So, while some of the more audacious cryptocurrency-related initiatives backed by Trump – like the creation of a strategic Bitcoin reserve – might not happen, it's difficult to refute the notion that the new policies will be overall positive for cryptocurrencies, particularly Bitcoin. CNBC has even coined this as the "Trump trade": investing in cryptocurrencies because you believe in Trump's support, and not overthinking it.
After Trump's pledge to create a business-friendly environment for cryptocurrencies, some companies, such as Coinbase Global and Ripple Labs, have expressed hopes of overcoming regulatory hurdles. In 2025, favorable cryptocurrency legislation with bipartisan support might be approved, potentially replacing the current SEC chairman with someone more sympathetic towards digital currencies.
Looking ahead, a proposed BITCOIN Act of 2024, drafted by Senator Cynthia Lummis, suggests the establishment of a strategic Bitcoin reserve, which could serve as a contingency resource or be used to offset the nation's debt in the future. Despite some election promises not always materializing, it's hard to dismiss the possibility of overall positive cryptocurrency policies under Trump's administration, especially for Bitcoin.