Why crypto mania is reaching new heights

Donald Trump’s victory has a flavour of revenge—not just for the man but also for crypto bros and their assets of choice. Over the course of election night, as it became clear Mr Trump had won America’s presidential election, the price of bitcoin, the most widely traded cryptocurrency, jumped by 10%. On November 11th, as Republicans edged closer to taking control of Congress, it hit a record $89,000. Since mid October it has surged by 45% (see chart).

Bitcoin is not alone in feeling the love. Excluding stablecoins, which are designed to avoid price swings, the top 20 crypto coins have appreciated even faster, on average, than bitcoin over the past week. Dogecoin, a meme coin often promoted by Elon Musk, a Trump fan-turned-adviser, has more than doubled since election day. The value of the global cryptocurrency market hit $3trn for the first time on November 12th.

That marks a stunning comeback from 2022-23, when a perfect storm sent cryptocurrencies tumbling from the peaks they had reached during the mania of 2021. Back then the Federal Reserve was raising interest rates at a brisk pace, cooling the speculative fever that had gripped markets in the wake of the covid-19 pandemic. Mismanagement and fraud caused several crypto firms once deemed above board—not least FTX, one of the largest crypto exchanges—to collapse, tainting the entire industry. Financial watchdogs doubtful of crypto’s usefulness were starting to growl.

In late 2023, when America’s presidential primaries came into view, the industry saw an opportunity to turn the tables. In the ensuing months Mr Trump proved to be a bombastic champion of crypto. Online he promoted World Liberty Financial, a decentralised-finance project backed by his family. At rallies he promised to make America “the bitcoin superpower of the world”. Crypto lobbyists spent more than $100m backing sympathetic candidates for Congress during the election cycle.

The mood music during the campaign is one reason crypto investors are cheering Mr Trump’s return to the White House. They are also hoping that a changing of the guard will make regulation kinder to crypto. In July, when Mr Trump addressed a rapturous crowd at the industry’s biggest jamboree, the loudest cheer erupted when he promised to fire Gary Gensler, the chairman of the Securities and Exchange Commission (SEC). “From now on the rules will be written by people who love your industry, not hate your industry,” he said then. Mr Trump, in fact, cannot fire Mr Gensler without cause before the end of his term, in 2026—though it is customary for SEC chairs to resign when a new president takes office anyway.

Mr Gensler’s departure would rid the industry of a perfect villain. He is unconvinced of cryptocurrencies’ merits: as recently as October he aired doubts about whether they would ever gain the stability and acceptability of traditional currencies. He has painted the crypto world as rife with scammers and thieves. And he has taken a long list of prominent crypto firms to court, ranging from Kraken and Coinbase (two crypto exchanges) to Ripple (a cryptocurrency issuer) and Cumberland DRW (a broker-dealer). That has forced many crypto ventures to pay huge legal fees and invest heavily in compliance. These legal problems and spiralling costs have cast a cloud over the industry’s future.

At the heart of Mr Gensler’s crusade is the contention that many digital currencies are in fact securities—the regulation of which falls under the SEC’s purview—and that the firms that issue, trade or offer them for sale should therefore have registered with the commission. Issuers and dealers of securities must disclose more information to regulators, and provide greater protection to clients, than digital-asset firms would like. They would prefer that cryptocurrencies be regulated under a bespoke (and presumably light-touch) regime, or as commodities, which are overseen by the less intrusive Commodities Futures Trading Commission (CFTC).

Under a second Trump administration, rules governing digital assets may be not only more lenient but also more consistent. In recent years the SEC and the CFTC have regularly squabbled over which crypto assets fall under their remit. Both, for example, have in the past claimed jurisdiction over ether, the second most popular cryptocurrency, though the SEC eventually relented (bitcoin, too, is deemed a commodity). Crypto firms have also accused Mr Gensler of constantly changing the SEC rules applying to digital assets.

Clarity may be the biggest prize on offer for those hoping to develop crypto into an asset class beloved of large institutional investors, which, in the absence of stable rules, have largely stayed away. Whether clarity does come is not yet clear. Mr Trump may sing cryptocurrencies’ praises, but his love for them does not stretch back far. As recently as 2021 he called bitcoin a “scam against the dollar”. Hope for consistency under Trump 2.0 may yet prove overhyped.

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