Cryptocurrency Under Scrutiny as U.S. Elections Approach

 The cryptocurrency sector is facing intensified scrutiny from regulators, with U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler describing it as “rife with fraud and hucksters.” In a recent interview, Gensler emphasized that the investing public has lost significant amounts of money due to non-compliance with existing laws by many crypto firms.

As the November elections draw near, the cryptocurrency industry is investing heavily in political donations to influence the legislative landscape. This includes the presidential race between Donald Trump and Kamala Harris, as well as all 435 House districts and 33 Senate seats up for grabs.

Cryptocurrency's Future in Jeopardy: Industry Faces Increased Scrutiny as U.S. Elections Loom

A Divided Political Landscape

The cryptocurrency debate has revealed stark differences in policy approaches between Trump and the Biden administration. Trump has actively sought support from crypto enthusiasts, promising to make the U.S. “the crypto capital of the planet” and proposing a “strategic national bitcoin stockpile,” reminiscent of the country’s gold reserves. Recently, he launched a new crypto venture, World Liberty Financial, stating, “I think crypto is one of those things we have to do,” a notable shift from his previous skepticism about Bitcoin.

In contrast, the Biden administration, with Kamala Harris as vice president, has adopted a tougher stance on cryptocurrency regulation. This year has seen significant enforcement actions, including the 25-year prison sentence for FTX founder Sam Bankman-Fried, who defrauded customers globally. Additionally, Binance’s founder, Changpeng Zhao, received a four-month prison sentence and a hefty fine for facilitating illicit activities on his platform.

Regulatory Landscape and Public Sentiment

Gensler highlighted the need for compliance with long-standing financial regulations, which aim to protect investors. He cautioned that while crypto is just a small segment of the broader financial market, it could undermine trust in these systems if not properly regulated. Despite the potential benefits of cryptocurrency, a recent Federal Reserve survey revealed a decline in U.S. users, from 12% in 2021 to just 7% last year.

While Harris has been relatively quiet on crypto issues, her advisors have indicated a willingness to support policies that foster growth in emerging technologies. Recent discussions between her team and industry leaders suggest a desire to build trust and possibly create a more favorable regulatory environment, regardless of who wins the upcoming election.

Industry Spending and Influence

The crypto industry has recognized the upcoming elections as a pivotal moment, spending an unprecedented $119 million on political contributions, according to research by Public Citizen. This funding aims to support pro-crypto candidates and challenge critics, regardless of their political affiliation. Rick Claypool, research director at Public Citizen, stated that this spending reflects an effort to pressure Congress into reducing oversight and consumer protections.

Global Context

This regulatory push in the U.S. mirrors actions in Europe, where the European Union has also introduced new laws aimed at mitigating the risks of crypto-related crime. However, other international regulatory bodies, such as the G20, are still formulating non-binding standards.

In the U.S., a regulatory bill has passed in the House but remains stalled in the Senate, with critics arguing it could reduce consumer protections. Coinbase’s chief legal officer, Paul Grewal, supports the bill, advocating for equal treatment of cryptocurrencies compared to other financial assets.

As the political landscape evolves ahead of the elections, the future of cryptocurrency remains uncertain, with both opportunities and challenges on the horizon for the industry.