The results of the US election will be beneficial for the development of the cryptocurrency industry.
Author: Zach Pandl, Will ogdenMoore; Grayscale Research
Compiled by: Shaofaye123, Foresight News
TL;DR
- The results of the US election could have a significant impact on the cryptocurrency industry. The next president and Congress may pass legislation specifically targeting cryptocurrencies, and may also make adjustments to tax and spending policies that could have a broader impact on financial markets.
- Current poll data and implied odds from prediction markets like Polymarket show the election race is highly competitive. As of October 15, these data indicate a higher likelihood of Republican control of the Senate. Given the Senate's role in confirming key regulatory appointments (such as the chairs of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC)), a change in Senate control is highly relevant for cryptocurrencies.[1]
- At the voter level, data shows cryptocurrencies are a bipartisan issue, with slightly higher Bitcoin ownership among Democrats than Republicans. Additionally, both party candidates have expressed support for crypto innovation.
- Regardless of which party is in power, comprehensive bipartisan legislation may be the best long-term solution for the US crypto industry.
While the 2024 US election involves many issues, the cryptocurrency industry has successfully captured the time and attention of candidates. This can be attributed to changing voter preferences: in a nationwide survey conducted by the Harris Poll on behalf of Grayscale, we found that about half of US voters would be more likely to vote for a candidate who is more interested in crypto education/information. The increased voter focus on cryptocurrencies reflects the growing urgency for comprehensive legislation as the industry evolves and innovates.
Below, we consider potential election outcomes for the White House and Congress and their possible impacts on the cryptocurrency market. For each outcome, we report the implied odds from Polymarket, a blockchain-based prediction market that has seen a sharp rise in adoption this year.
Most outcomes have a high degree of uncertainty: poll data and prediction markets indicate a tight race. However, these data suggest the potential for a shift in Senate control (from Democratic to Republican), which could be a direct influence on the crypto industry given the Senate's role in confirming presidential appointments.
The White House
Polymarket odds: Trump 57% / Harris 43% (as of October 15, 2024)
Outcome: A Trump victory could mean more supportive regulators and a larger budget deficit, both of which could be positive for Bitcoin and cryptocurrencies. However, Trump's fiscal policy plans require Congressional support, and tariffs could create market uncertainty.
The next president will set the cryptocurrency policy agenda, nominate key regulators, and drive broader economic policy decisions on taxes, spending, and tariffs. Former President Trump has expressed great enthusiasm for the digital asset industry, claiming he wants to make America the "cryptocurrency and Bitcoin capital of the world".[2] He has also announced plans to launch a cryptocurrency lending platform called World Liberty Financial, though details of the project remain to be disclosed.[3]
Vice President Harris has recently made more supportive statements about digital assets, explaining that her administration will "encourage innovative technologies like artificial intelligence and digital assets, while protecting consumers and investors".[4] Her campaign team is also reportedly set to announce plans to protect crypto assets and develop a "cryptocurrency and other digital asset rules agenda".[5]
However, Harris' campaign has provided fewer details, and it is worth noting that, as some crypto industry participants and commentators have observed, the current Biden/Harris administration has taken a confrontational approach to industry oversight, such as initiating a series of lawsuits, restricting the use of traditional banking services, and vetoing bipartisan legislation.[6] Therefore, a Trump administration is more likely to nominate regulators supportive of crypto industry innovation.[7]
Bitcoin's prospects may also depend on the macroeconomic policy choices of the next administration (see Bitcoin and the Macroeconomic Policies of Biden vs. Trump for more details). Analysts find that both Trump and Harris's fiscal policy proposals would lead to larger budget deficits - already quite large. [8] Before incorporating campaign plans, the Congressional Budget Office (CBO) projected the federal deficit to average 6.2% of GDP over the next 10 years. According to the Penn Wharton Budget Model (PWBM), while Harris plans to raise the corporate tax rate to 28%, her proposed expansions of the child tax credit and other reforms would increase the 10-year average deficit to 6.5% of GDP.[9] Meanwhile, PWBM analysis shows that former President Trump's plan to extend the 2017 tax cuts and lower other rates would increase the 10-year average deficit to 7.8% of GDP (Chart 1).[10]
Grayscale Research believes that, all else equal, large medium-term budget deficits would have a negative impact on the US dollar and a positive impact on Bit.
Chart 1: Both candidates have not planned to reduce the federal deficit
However, the practical market impact remains uncertain. First, fiscal policy changes must be approved by Congress, and it is unclear which campaign proposals can become law - especially in a divided government. Second, former President Trump also plans to significantly raise tariffs. Tariff increases often strengthen the US dollar and could put pressure on risk assets, especially if other countries retaliate.[11] While tariffs would not directly impact Bit, crypto asset valuations are related to broader market factors, so tariff hikes could pose downside risks to prices.
The Senate
Polymarket odds: Republican control 78% / Democratic control 22%
Outcome: Although members of both parties have expressed support for certain aspects of crypto policy, Republican control could have a more positive impact on the crypto industry due to the Senate's critical role in confirming regulatory appointments.
The Senate, along with the House, is responsible for passing fiscal policy changes[12] as well as legislation targeting cryptocurrencies. The Senate also has the responsibility of confirming presidential appointments, including the key regulatory bodies like the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Federal Reserve Board. Given the uncertain regulatory status of many crypto assets, the Senate's oversight of agency appointments is crucial for the industry.
Crypto-related legislation in the current Congress has been a bipartisan effort, including the Digital Commodities Act in the Senate Agriculture Committee and stablecoin legislation in the Senate Banking Committee.[13] In contrast, Republican Senators have been more supportive of the crypto industry. For example, the crypto lobbying group Stand With Crypto[14] gave "A" grades on crypto issues to 39 out of 49 Republican Senators, compared to only 6 out of 51 Democratic Senators.[15] Voting patterns also indicate more Republican support for the crypto industry: on the Senate vote to overturn SEC Staff Accounting Bulletin (SAB) 121,[16] 48 Republicans voted in favor, compared to only 12 Democrats.
The Democrats currently control the Senate, chairing committees, setting legislative priorities, and ultimately having decisive voting power on some presidential appointments. Given that Republicans generally tend to be more supportive of crypto innovation, Grayscale Research believes a shift in Senate control could have a positive impact on the crypto market - and, given the critical role of regulatory oversight, this may be the most important election outcome for the industry.
The House of Representatives
Polymarket odds: Republican control 44% / Democratic control 56%
Outcome: Control of the House is crucial in determining whether the government will be unified or divided, which will to some extent determine the next president's ability to achieve their stated fiscal policy goals, thereby having broader impacts on financial markets.
Like the Senate, any changes to fiscal policy or the passage of specific cryptocurrency legislation would require the support of the House of Representatives. The legislation being considered by this Congress has received bipartisan support, but Republican support is stronger. For example, on the House Financial Services Committee's FIT21 [17] bill, 208 Republicans voted in favor, while only 71 Democrats did, including former Speaker Pelosi and Democratic Caucus Chair Clark.
Control of the House will determine the committee assignments and legislative priorities, which could impact crypto policy. But the most significant impact will be whether one party controls both the White House and Congress - a "unified government" - or control is divided between the parties - a "divided government". Under divided government, changes to fiscal policy may be difficult to achieve.
Eight Scenarios
For the upcoming U.S. election, there are three institutions (the White House, Senate, and House) involved, each with two possible outcomes (Republican or Democratic control). This results in eight different possible scenarios, each with different implications for the crypto industry. Figure 2 provides the implied odds from Polymarket for each scenario.
Figure 2: The election remains highly uncertain according to prediction markets
Grayscale Research highlighted a few key points. First, none of the four more likely scenarios clearly dominates - in other words, the post-election power balance remains highly uncertain. Second, observers are divided on whether we will have a unified or divided government: the combined odds of a Democratic or Republican sweep are still close to 50%. Third, the only specific outcome with relatively high odds is Republican control of the Senate. As long as this holds, we would view the election outcome as tilting in a direction favorable to the crypto market, as the Senate plays a key role in confirming presidential appointments.
Crypto is a Bipartisan Issue
At the voter level, cryptocurrency is a bipartisan issue. Harris Poll data commissioned by Grayscale shows that self-identified Democrats have higher rates of Bitcoin ownership and familiarity with crypto than Republicans, and Democrats have generally increased their interest in crypto this year. [18] Moreover, any new crypto legislation would require a Senate supermajority, necessitating bipartisan support.
Nevertheless, given the Senate's key role in confirming regulatory agency appointees, Grayscale Research views Republican control of the Senate as a significant positive for the crypto industry. As such, current polling and prediction market implied odds suggest a favorable outcome for crypto markets.
However, there remains significant uncertainty around the next administration's legislative prospects for crypto and potential fiscal policy changes. In Grayscale Research's view, the best outcome for the long-term development of the crypto industry would be continued bipartisan efforts to craft more comprehensive legislation.
Harris Poll Methodology
This survey was conducted online within the United States by The Harris Poll on behalf of Grayscale through its Harris On Demand omnibus product from September 4-6, 2024 among 1,841 U.S. adults (aged 18 and older) who plan to vote in the 2024 presidential election. Data were weighted where necessary by age, gender, race/ethnicity, region, education, marital status, household size, household income, employment, and internet usage to align them with their actual proportions in the population. Respondents for this survey were selected from among those who have agreed to participate in our surveys. The sampling precision of Harris online polls is measured using a Bayesian credible interval. For this research, the sample data is accurate to within +/- 2.8 percentage points using a 95% confidence level. The credible intervals will be wider among subsets of the population of interest.
References
[1] Grayscale takes no position as to the accuracy or reliability of polling data and implied odds from prediction markets like Polymarket. Throughout this piece, Grayscale uses data from Polymarket to suggest general directionality of potential election outcomes.
[2] Source: Barron's.
[3] Source: NY Times.
[4] Source: Bloomberg.
[5] Source: NPR.
[6] See, for example, WSJ, Unchained Crypto, Reuters, TechCrunch, Axios, Reuters.
[7] On regulation, former president Trump has said, for example, "The rules will be written by people who love your industry, not hate your industry." Source: CNBC.
[8] This statement from the CBO sums up the current budget picture: "Over the 10-year projection period, primary deficits in CBO's baseline average 2.5 percent of GDP. In the 62 years from 1947 to 2008, primary deficits exceeded 2.5 percent of GDP only twice. In the past 15 years, though, they have exceeded that percentage 10 times—in part because of legislation enacted in response to the 2007–2009 financial crisis and in the wake of the coronavirus pandemic that began in early 2020." Source: CBO.
[9] PWBM estimates are based on the primary (before interest) deficit; Grayscale incorporated CBO estimates of interest expense before the campaign's proposals to calculate the total deficit impact. Estimates of the budget impact of campaign proposals differs across sources, and figures presented here should be considered illustrative. For alternative estimates see, for example, Committee for a Responsible Federal Budget.
[10] PWBM estimates of the Trump proposals do not include the potential impact of tariffs on customs revenue. However, projections that do include tariff revenue, like those from the Committee for a Responsible Federal Budget, find a broadly comparable net impact on the deficit. Estimates of the revenue impact of Trump's tariffs plans over a ten-year period, if maintained, range from roughly $2 trillion to $5 trillion. Source: Committee for a Responsible Federal Budget, Tax Policy Center, Tax Foundation.
[11] A variety of research has examined the impact of tariff increases on the US Dollar. See, for example, The multifaceted impact of US trade policy on financial markets and To What Extent Are Tariffs Offset By Exchange Rates. For the impact on risky assets see, for example, The Effect of the U.S.-China Trade War on U.S. Investment.
[12] Changing tariffs does not typically require Congressional approval.
[13] Specific bills are the Digital Commodities Consumer Protection Act of 2022 (S.4760) and the Lummis-Gillibrand Payment Stablecoin Act (S.4155).
[14] The Stand With Crypto Alliance is a 501(c)(4) nonprofit funded by donations. Grayscale takes no position as to the accuracy or reliability of data from The Stand With Crypto Alliance. Throughout this piece, Grayscale uses data from The Stand With Crypto Alliance to suggest general directionality of where members of Congress stand with respect to crypto policy.
[15] Counting independent senators who caucus with Democrats.
[16] SAB 121 is a financial guideline requiring companies to report customer-held crypto as both assets and liabilities, affecting how they manage crypto custody services.
[17] Financial Innovation and Technology for the 21st Century Act (H.R.4763).
[18] Across the three waves of polling, 18% of self-identified Democrats said they owned Bit, compared to 15% of Republicans. Similarly, 51% of Democrats said they were "very familiar" or "somewhat familiar" with crypto, compared to 45% of Republicans. Lastly, in the third wave of polling (September 4-6, 2024), 37% of Democrats said they have become moreopen to learning more about investing in crypto this year, compared to 30% of Republicans. Source: The Harris Poll.
