The role of crypto in the 2024 US election

Once dismissed as a fringe technology or associated with shady internet transactions, the perception of cryptocurrency has undergone a significant transformation. Today, it not only reshapes industries but also plays a growing role in US elections, contributing a substantial share to campaign funding in the current election cycle. In recent years, the sector has achieved critical milestones, experiencing exponential growth, integrating deeply into the traditional financial system, and proving its utility across a wide range of applications.

Blockchain, the technology underpinning decentralised platforms, is now increasingly adopted by traditional financial institutions to enhance efficiency and security. Additionally, the tokenisation of conventional assets is gaining momentum, with more brands accepting cryptocurrencies for payments and incorporating NFTs into their marketing strategies.

According to polling data, cryptocurrency is becoming a crucial issue for younger and independent voters, many of whom are drawn to its decentralised and libertarian ideals. This is especially true in tech-centric regions like Silicon Valley. In fact, in the current elections, cryptocurrency is the largest form of contribution to political fundraising on either side of the political spectrum.

The market capitalisation of crypto has quintupled since the previous US election. Bitcoin has risen to the top 10 assets by market value—a list headed by Gold and Apple—and is competing with assets worth more than $1 trillion, such as Silver, which has been around for 5000 years, and Meta, one of the largest technology companies globally. As of 2024, the total value of all crypto assets exceeds $2 trillion, positioning crypto as a mainstream financial force.

This exponential growth is reflected in the total crypto market cap on each election day since 2008:

Total crypto market cap on each election day since 2008

Traditional finance (TradFi) integration

One of the sector's most significant recent developments is the increasing integration of crypto into traditional finance. The market's gains in 2023 highlighted the growing demand for cryptocurrencies as both an investment and a payment method. Despite its volatility, Bitcoin's long-term trajectory has been fuelling increasing investor demand as it is often considered a hedge against fiat currency debasement due to inflation.

The 2024 launch of Bitcoin and Ethereum ETFs in the United States was a major step forward in the integration of cryptocurrencies into traditional financial systems. These ETFs have attracted a broader audience, as they provide exposure to cryptocurrencies without requiring investors to buy or hold coins.

As regulatory frameworks strengthen, financial institutions gain confidence and are increasingly looking for ways to incorporate cryptocurrencies into their services. A pivotal moment in this shift occurred when BlackRock’s CEO, Larry Fink, reversed his 2017 stance. After initially dismissing Bitcoin as a money-laundering tool, Fink now endorses it as a global asset with the potential to transform the financial system. BlackRock's introduction of two cryptocurrency-related ETFs significantly boosted market sentiment, attracting institutional investors and solidifying cryptocurrency's potential as an investment option.

However, not all perceptions have shifted. Prominent personalities such as Nobel laureate Paul Krugman and legendary investor Warren Buffett remain sceptical, citing concerns about volatility, lack of intrinsic value, potential illegal activity, environmental impact, and the speculative nature of the market. These contrasting points of view highlight the polarised perspectives of individuals, and thus governments, about the role of cryptocurrencies in the economy.

The current administration’s stance on crypto

Despite the sector's impressive growth, the current administration has been particularly harsh towards cryptocurrencies.

While previous administrations targeted businesses considered at risk for fraud and money laundering, pressuring banks to cut off access to these industries, the current administration has targeted the crypto industry through an orchestrated crackdown known as Operation Choke Point 2.0. The initiative involved multiple government agencies, aiming to restrict crypto’s access to US banking services, restricting its growth and influence in the market.

This regulatory pressure led to the collapse of key crypto-involved banks like Silvergate and Signature Bank in 2023. To make matters worse, under SEC Chair Gary Gensler, lawsuits were filed against major crypto entities like Binance and Coinbase. Gensler’s efforts to impose traditional securities regulations on crypto were met with criticism, as many in the industry argued this approach would stifle innovation and drive crypto activities overseas.

Nonetheless, not all Democrats are anti-crypto. In a recent vote on the Financial Innovation and Technology for the 21st Century Act (Fit 21), 71 Democrats, including prominent figures like Nancy Pelosi, broke with their party’s traditional views and supported the need for specific crypto regulations. This growing support among Democrats suggests that the party’s approach to crypto might be evolving.

Where does Kamala Harris stand on crypto?

The crypto industry is closely watching Democratic presidential nominee Kamala Harris, who has yet to publicly state her position on digital assets. While the industry is hoping for a favourable policy shift, Harris declined to speak at the Bitcoin 2024 Conference, leaving stakeholders uncertain about her plans. This ambiguity has left the crypto sector in a state of anticipation, waiting for clarity on how the issue will be addressed.

Where does Donald Trump stand on crypto?

In contrast, Donald Trump has made his pro-crypto position clear. Speaking at the Bitcoin 2024 event in Nashville, he criticised the current administration's "war" on cryptocurrency through excessive regulation and pledged to remove SEC Chairperson Gary Gensler if elected.

Highlighting the importance of US leadership in technology, energy, and manufacturing, he reiterated his “America First policy,” vowing to position the US as a global leader in digital assets, promising that Bitcoin and other cryptocurrencies would be "mined, minted, and made in the USA." As part of his platform, Trump also promised not to sell the government's Bitcoin holdings, as he commits to making the US a "Bitcoin superpower."

The broader Republican platform has also shifted towards crypto-friendly policies. For instance, the GOP opposes Central Bank Digital Currencies (CBDCs) and advocates for protecting Bitcoin mining and self-custody of digital assets. Senator Cynthia Lummis and Robert F. Kennedy Jr. have even proposed creating national reserves in Bitcoin.

Although Donald Trump and his family have embraced crypto and NFTs with the release of Trump-branded digital trading cards and artwork, he has not always been a pro-crypto supporter. During his administration, he also criticised crypto, claiming it was volatile and facilitated illegal activities, and that he favoured the US dollar as the dominant global currency. Despite his support for stricter regulations on digital assets, there was no widespread crackdown during his presidency, and the industry continued to evolve with minimal intervention.

The role of crypto in fundraising and donations

The Federal Election Commission’s decision to allow crypto donations as in-kind contributions has further integrated crypto into the political landscape. These donations are channelled through PACs, US-based political groups that aim to influence elections through advertising, lobbying, and other means.

Considering the high stakes and opposing views, the crypto industry's significant investments in political fundraising reflect its strategy of ensuring influence over future regulatory policies. Major players like Coinbase, Ripple, and Andreessen Horowitz have contributed about $150 million in the current election cycle, with high-profile figures such as the Winklevoss twins also supporting pro-Trump superPACs. Despite Republicans receiving somewhat more support, Democrats also benefit, allowing the industry to maintain bipartisan influence regardless of election outcomes.

This pattern of intervention dates back to the 2020 election, when Sam Bankman-Fried, then founder of FTX, contributed $5.2 million to Future Forward, a Biden-Harris-supporting PAC. While primarily backing Democratic candidates, he strategically donated across the political spectrum to maintain influence on key issues, including cryptocurrency regulation.

However, despite these significant contributions, the issue of cryptocurrency remains largely absent from key political discussions. In the first presidential debate between Donald Trump and Kamala Harris on 10 September 2024, neither candidate mentioned cryptocurrency, raising concerns about the sector's disproportionate influence behind the scenes.

The role of blockchain in elections and Polymarket's influence

Beyond its financial applications, blockchain technology has the potential to transform the electoral process itself. Blockchain's decentralisation and transparency offer secure voting systems, immutable record-keeping, and transparent means to track campaign finances.

One clear example of blockchain’s growing role in elections is Polymarket, a decentralised prediction market platform built on the Polygon blockchain. By allowing users to bet on future events, Polymarket aggregates public sentiment through financial incentives, potentially offering highly accurate predictions of election outcomes. With nearly 30,000 active users and over $450 million in bets on the 2024 US Presidential Election, Polymarket highlights how blockchain technology can influence and measure political sentiment.

Conclusion

The cryptocurrency industry has already become a formidable lobbying force in US politics, with significant cash flowing into campaign donations and political action committees. As this trend continues, cryptocurrency could become a mainstream instrument for political fundraising. The future of US crypto regulation hinges on the 2024 election results, with a Republican victory likely leading to deregulation and a Democratic win maintaining the campaign for tougher controls. Beyond fundraising, as the use of blockchain technology expands, its potential to revolutionise US elections will only increase.

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