Biden ignoring crypto would be a best case scenario

Democratic congresswoman Maxine Waters has written to president elect Joe Biden asking that he rescind the guidance from the Comptroller of the Currency that national banks and federal savings associations had the authority to provide cryptocurrency custody services. The request from Waters is the first concrete move by a senior Democratic house member related to crypto, since Biden’s election – and shines some light on what the attitude of Democrats in the incoming adminstration might be to cryptocurrencies.

My work at Freewallet and the research I have done into the various legislative approaches being taken with crypto around the world has made the topic of the US Government’s attitude to crypto of particular interest to me, as it is, I am sure, to many.

To get a better picture of what’s likely to happen, we should start by getting to the bottom of how things stand presently. The presidency of Donald Trump has been an eventful time for digital currency. On the heels of his election, Bitcoin went on its now legendary 2017 price climb, which saw it reach its all-time high just south of $20,000 in December of that year. At the time, the conventional wisdom was that cryptocurrency was something of a hedge against economic uncertainty.

Uncertain times and the 2017 bull run

Although in hindsight everything prior to 2020 may seem idyllic, if we think back to 2016 we will remember that times were tumultuous. Brexit, the shocking presidential election, US-Russia relations — geopolitics were fraught with tension and it was with that uncertainty as a backdrop that cryptocurrency flourished. Although the concept of digital currency and blockchain technology had been around for some time before that, they had not crossed over into the popular consciousness. Most people that had heard about cryptocurrency before 2016 were either active in the tech sector or associated it with the dark web and illegal online activity due to the sensational news stories it had been featured in.

The novelty of Bitcoin in those days, and the influx of people looking to proverbially strike gold by buying in, led many to believe that it was a fad or even a Ponzi scheme destined to fail. Most traditional financial analysts warned away from getting involved with digital currency and considered the addition of Bitcoin to a portfolio unwise.

Downturn and crypto winter

To the dismay of many believing that crypto was the new, inevitable economic reality, the doubters were proven right, at least at first. Bitcoin never hit $20,000 and in early 2018 started its steady slope downward, eventually bottoming out around the $3,000 mark. In the excitement of its ascendency, those who believed that this new industry was the economic future were convinced that it was only a matter of time before traditional financial institutions and governments took heed and cleared a place for crypto at the table. Despite these expectations, however, it never really happened, at least not in the transcendent way anticipated by the evangelists.

Bitcoin fell, but it wasn’t finished, and new coins rose – most notably Ethereum. The crypto and blockchain sectors expanded. Bitcoin would recover ground and get back to the plus $10k range. Rumors would circulate about this or that bank about to incorporate blockchain technology and ‘go all in’ on crypto, but this never really happened. Instead of a shift in policy in traditional finance, what occurred was a concentration of power in the crypto industry. Exchanges rose to prominence around the world as day traders and speculators, drawn to the industry’s easy access and laissez-faire legislation, turned several crypto exchanges into billion-dollar enterprises.

Uncle Sam sounds off

As exchanges grew and crypto activity showed no signs of abating, pressure mounted on governments to respond with a legal framework for crypto. In America, while the IRS showed itself eager to claim a slice of profits made on transactions, the official attitude towards cryptocurrency could perhaps best be described as condescending. But then Facebook’s plans to release its own Libra cryptocurrency forced American authorities to assess the situation seriously.

The Trump administration has had an adversarial relationship with the digital currency industry. The two driving figures behind that have been Steve Mnuchin and President Trump himself. Once Facebook’s Libra plans were revealed, Mnuchin took the unprecedented step of publicly declaring cryptocurrencies “a national security threat.” While it was never clear what Mnuchin exactly meant by that, he portrayed crypto as primarily a means of laundering money and supporting terrorism.

If the crypto world was disappointed by what the Treasury Secretary was saying, they were to find no comfort in the words of the president. Trump took to Twitter to proclaim, “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity….”

The Covid Effect

Despite the Trump administration’s public admonishments, the crypto market proved itself resilient. That was until the early stages of the Covid-19 pandemic. Although long thought of as a “safe haven asset,” should more traditional markets plunge, when global markets went into a tailspin last March and crypto followed suit. Bitcoin dropped around $5k, only steadying itself after it had fallen to around $4,000.

However, as the holidays approach the story has changed once again. Bitcoin is within striking distance of its all-time high, sitting around $19,000 at press time. The landscape has changed drastically as well. While four years ago the average person had to jump through hoops to get their hands on Bitcoin, now it has become remarkably easy. At Freewallet, the platform where I work, for example, all you need is an email, Facebook or phone number to sign up and exchanges are performed in about 30 seconds.

While uncertainty has been the theme of the pandemic, decentralized finance has been an economic bright spot. Many believe that the long term economic consequences of Covid will, among other things, accelerate the digitization processes currently in play. The crypto and blockchain industry would be in prime position to benefit from this trend. Beyond that, as a lockdown-proof industry, decentralized finance has been one of the few industries to provide consumers and investors with economic opportunities when they are otherwise scarce.

Crypto on the rise, Biden on the brink

This all brings us to the recent election. Since Biden was elected, Bitcoin, which you can generally look at as a bellwether for the industry as a whole, has risen by over $5k. People are bullish on crypto going into the Biden administration, but that is not necessarily due to any pro-crypto stance on behalf of Joe Biden. The stock market has also taken off recently in what has been called a ‘back-to-normal-rally.”

While digital currency was once viewed as a safe haven asset, it would perhaps be more appropriate to consider it less of an alternative to traditional finance and more of an improvement. The way that its performance has mirrored that of global stock markets illustrates that its success is dependent on general economic health. Those who have stuck with crypto through its ups and downs may be feeling like now is the time to dig up old “Ponzi scheme” tweets and reach out to friends and family that dismissed them as crazy. Crypto is arguably in a much stronger position than the last time it was approaching 20k.

Where Biden stands personally on the question of digital currency is not known, but he has hired some key people who seem to at least understand it. Gary Gensler, for example, is currently leading Biden’s financial oversight transition team. He penned an op-ed about Bitcoin for Coindesk once in which he said, "The potential of this technology to be a catalyst for change is real. I remain intrigued by Satoshi’s innovation’s potential to spur change—either directly or indirectly as a catalyst."

Biden has appointed former Federal Reserve head Janet Yellen as his Treasury Secretary. There’s buzz in crypto media that she’s a blockchain fan, but her public comments about Bitcoin while at the Fed were that it’s volatile, unstable and not legal tender. So she’s not really a cheerleader – but I think this is actually good news.

Why? Because the US will likely be doing massive fiscal stimulus for the next year or more. That’s good for Bitcoin’s narrative as a store of value. Also, the US government under Trump has been cracking down on exchanges (Bitmex and others) with poor KYC and AML. That’s also good for Bitcoin and crypto in terms of compliance and helping the public feel more confident they’re not going to be ripped off. Meanwhile the SEC has continued to reach settlements with crypto ICO projects that it views as being originally marketed as securities. That is also a positive because the ones that survive the process will be stronger for it.

But I think it is arguable that if the new administration really paid attention to crypto, it likely wouldn’t end well. Look what happened when Libra raised its head. It was the only time crypto really got on to the US government’s fiscal radar and it was a hair on fire moment for most US senators. Why would it be any different now? From the perspective of warming US lawmakers up to crypto in general, the Libra fiasco was an epic fail.

Bottom line? Trump’s relative disinterest has been good for crypto. Hopefully Biden will ignore it as well.