TL;DR
· The outcome of the US election could have a significant impact on the crypto 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 broader impacts 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 presidential appointments to key regulatory bodies (such as the chairs of the SEC and CFTC), a shift in Senate control is highly relevant to the crypto industry.[1]
· At the voter level, data shows cryptocurrencies are a bipartisan issue, with slightly higher Bitcoin ownership rates among Democrats than Republicans. Additionally, candidates from both parties 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 crypto 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 currency education/information. The increased voter focus on cryptocurrencies reflects the growing urgency for comprehensive legislation as the industry evolves and innovates.
Below, we will consider potential election outcomes for the White House and Congress and their possible impacts on the crypto currency market. For each outcome, we will report the implied odds from Polymarket. "Polymarket is 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 both indicate a tight race. However, these data suggest the control of the Senate may shift (from Democratic to Republican), and given the Senate's role in confirming presidential appointments, this could be a change with direct relevance to the crypto industry.
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 crypto currency 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, stating he wants to make America "the cryptocurrency capital of the world"[2]. He has also announced plans to launch a crypto currency 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 innovations 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 "crypto currency and other digital asset rules agenda".[5]
However, Harris' campaign has provided fewer specifics, and it's 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] As such, a Trump administration may be 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 - though the federal deficit is already quite large. [8] Prior to 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, the 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 Bitcoin.
However, the practical market impacts remain 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 Bitcoin, 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 of the Senate 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 crypto-specific legislation. The Senate also has the responsibility of confirming presidential appointments, including to the key regulatory bodies like the SEC, CFTC, and Federal Reserve. Given the uncertain regulatory status of many crypto assets, the Senate's oversight of agency appointments is crucial for the industry.
Crypto legislation considered in the current Congress has been bipartisan, including the Digital Commodities Consumer Protection 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, and thus hold committee chairmanships, set legislative priorities, and ultimately have decisive voting power on some presidential appointments. Given that Republicans are generally 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 electoral 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 and thus have 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 cryptocurrency policy. But the most significant impact will be whether one party controls both the White House and Congress - a "unified government"; or if control is split between the parties - a "divided government". Under a 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 cryptocurrency industry. Figure 2 provides the implied payouts from Polymarket for each scenario.
Grayscale Research highlighted several key points. First, among the four more likely scenarios, none 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 remain close to 50%. Third, according to Polymarket data, the only specific outcome with relatively high odds is Republican control of the Senate. As long as this scenario holds, we would view the election outcome as tilting in a direction favorable to the cryptocurrency market, as the Senate plays a crucial role in confirming presidential appointments.
Crypto is a Bipartisan Concern
At the voter level, cryptocurrency is a bipartisan concern. A national survey conducted by Harris Poll on behalf of Grayscale found that self-identified Democrats have higher rates of Bitcoin ownership and familiarity with cryptocurrencies than Republicans, and Democrats' interest in cryptocurrencies has generally increased this year. [18] Additionally, any new cryptocurrency legislation would require an absolute majority in the Senate, necessitating bipartisan support.
Nevertheless, given the Senate's crucial role in confirming regulatory agency appointees, Grayscale Research believes Republican control of the Senate would be a significant positive for the cryptocurrency industry. As such, current polling and prediction market implied odds currently suggest a favorable outcome for the cryptocurrency market.
However, there remains significant uncertainty around the legislative prospects for cryptocurrencies or potential fiscal policy changes under the next administration. In Grayscale Research's view, the best outcome for the long-term development of the cryptocurrency industry would be continued bipartisan efforts to develop more comprehensive legislation.
Harris Poll Methodology
The survey was conducted online within the United States by The Harris Poll on behalf of Grayscale using its Harris On Demand omnibus product from September 4-6, 2024 among 1,841 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 tendency to align with actual population proportions. 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 study, the sample data are 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. All sample surveys and polls, regardless of whether they use probability sampling, are subject to multiple sources of error which are not possible to quantify or estimate, including but not limited to coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments.
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