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The crypto industry has scored some early wins since President Donald Trump took office, including crypto-friendly appointees at key regulatory agencies and a flurry of directives that relaxed regulations for the industry. The price of bitcoin hit an all-time high shortly after the results of the presidential election were announced in November. However, the optimism that propelled bitcoin to all-time highs hasn’t been able to translate into sustained gains for investors as the price of bitcoin has since remained volatile.
Here's what to know about the new administration’s whirlwind of crypto-related moves in its first month:
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Trump’s executive order on digital assets
Trump signed in his first week an executive order that, among other things, created a working group to advise the White House on policies governing digital assets (such as cryptocurrencies and non-fungible tokens), with the involvement of some federal agencies, including the Justice Department, Treasury Department, Securities and Exchange Commission, and the Commodity Futures Trading Commission.
The executive order aims to establish federal policy that promotes the “responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy,” by providing regulatory clarity and certainty to the industry. It also seeks to support the development of dollar-backed stablecoins worldwide, and fair and open access to crypto-related banking services. The working group will submit a report in about six months that would include recommendations towards reshaping cryptocurrency regulation.
SEC launches a “crypto task force”
The SEC launched a “crypto task force” on January 21 that will review the agency’s approach to dealing with digital assets and work on developing registration rules for crypto. The move signals a sharp departure from the Biden administration’s enforcement-heavy approach to a more collaborative and industry-friendly stance.
The task force will craft disclosure frameworks and provide clarity on when crypto tokens qualify as securities. The group aims to develop a comprehensive and clear regulatory framework for crypto assets, addressing long-standing industry concerns about regulatory uncertainty and potentially lowering barriers for businesses in the industry.
The cryptocurrency industry is optimistic that the task force will provide a road map for growth amid a broader push by the Trump administration to pull back on the regulation of the industry. Meanwhile, the SEC has scaled back a special unit of more than 50 lawyers and staff members that had been dedicated to bringing enforcement actions against crypto-market participants. The agency also recently withdrew enforcement cases against Coinbase that sought to regulate the company as a stock exchange.
A national bitcoin stockpile
The White House’s first-ever crypto and artificial intelligence czar, David Sacks, and the task force are also looking into the possibility of creating a national bitcoin reserve. A reserve asset is typically a critical resource that can be used in times of crisis. The U.S. currently has an emergency petroleum reserve, which it can use to protect against oil supply shocks. The U.S., like many other nations, also has a gold reserve.
Proponents of a bitcoin reserve say the crypto asset would be an effective reserve as its supply is finite, making it an attractive hedge against inflation. Only 21 million coins will ever exist because of the algorithm written into bitcoin’s blockchain. The prospects of a national bitcoin stockpile would likely cement endorsement of the asset by the U.S. government and push its price even higher. But how such a reserve would work in practice is unclear.
The creation of a strategic reserve poses several structural challenges. Chief among these are how the federal government would fund bitcoin purchases, and whether the Federal Reserve or the Treasury Department would take the lead in purchasing bitcoin for the national reserve. The U.S. government already holds around $21 billion in bitcoin, which it has seized through criminal investigations, which would likely be added to the national reserve. A U.S. strategic reserve would likely spur similar efforts by other nations, according to AllianceBernstein.
The odds of crypto legislation rising
Congress has formed a bicameral working group to craft crypto regulation. The Senate also established a new subcommittee for digital assets under the Senate Banking Committee. Congress is already working on legislation for stablecoins. The bill is gaining traction on Capitol Hill and could become law later this year.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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