Over the past few years, the cryptocurrency industry has undergone a major paradigm shift in policy and perception. In July, Congress passed the GENIUS Act. This is the enactment of a three-part federal regulation that gives cryptocurrencies trustworthy recognition in the public sector. But this breakthrough in the industry has not been easy. The obstacles to its recognition have been shaped by broader debates over its regulation and integration, rather than by partisan rivalry. The politicization of cryptocurrencies is problematic because it undermines their hedge against inflation, gives investors disproportionate influence, and impedes their globalization potential.
Cryptocurrency, as an economic entity, may seem already too intertwined with politics to remain nonpartisan. The debate over the deregulation of cryptocurrencies, which is largely being promoted by President Donald Trump’s administration, is dominating crypto news. It seems inevitable that Republicans and Democrats will diverge over the future of digital currencies. Democrats advocate regulation to reduce fraud, while Republicans focus on deregulation to promote market freedom.
But the reality is that the core principles of cryptocurrencies align with bipartisan values. Regardless of political affiliation, globalization and financial inclusion benefit developed and developing countries alike and have favorable goals for everyone. Recent developments within the Senate show that bipartisanship is out of reach: Sen. Ruben Gallego, D-Ariz. Mark Warner, D-VI; and Kirsten Gillibrand, D-N.Y., have introduced proposals to advance cryptocurrency legislation. A comprehensive effort to implement virtual currencies as efficiently as possible, while mitigating the impact of their negative excesses, will enable nations to fully reap their potential benefits.
The performance of traditional U.S. public markets typically rises and falls with political cycles. As political party control and policy direction change, investor confidence also changes. Factors such as election years, party dominance, and economic legislation all play a fundamental role in gross domestic product growth and the health of the stock market. Successful investors tolerate election year volatility and time their financing carefully, but external factors can also affect loan values and interest rates, only adding to the complexity of long-term investing.
In contrast, one of the key characteristics of cryptocurrencies is their resistance to inflation, deflation, and disinflationary behavior. This is because cryptocurrencies are uniquely systemically independent from government and central bank functions. It has a weaker correlation with concentrated markets than other investments, making it less susceptible to political turmoil.
However, if cryptocurrencies continue down the path of polarization, they will likely fall along with the rest of the stock market and business cycle fluctuations. The decision to invest in or engage with cryptocurrencies is politically influenced, so the crypto investor population changes with election cycles. To maintain a hedge against inflation, stablecoins and cryptocurrencies must avoid political attention and rely on bipartisan support.
The politicization of cryptocurrencies not only undermines market independence but also creates conflicts of interest between crypto-related sectors and the law. A perfect example of this happening is Gemini, a US-backed crypto trading platform that offers stablecoins, credit cards, and a crypto rewards program. Gemini CEO Tyler Winklevoss and President Cameron Winklevoss have shown more public support for Trump than ever before. President Trump has accepted this support by investing $5 billion in cryptocurrencies. The United States is supposed to enforce ethics laws to prevent government employees from making personal investments that could influence decision-making to advance their own financial interests. In this case, President Trump’s combination of personal and financial ties to Gemini poses a clear conflict of interest.
In addition, the Winklevosses had a dispute with former Commodity Futures Trading Commission Commissioner Brian Quintenz over the handling of the CFTC’s lawsuit against Gemini. Tyler Winklevoss then advised Trump to reconsider Quintes’ nomination. As expected, the administration did not hesitate to withdraw Quintenz’s nomination, demonstrating the extent of influence crypto leaders have over government appointments and regulatory decisions.
This control is problematic because it can lead to unwarranted regulatory actions and give large stakeholders undue control over certain cryptocurrencies. When large crypto investors, or “whales,” own too many shares in a currency and are given too much freedom, a pump-and-dump effect occurs where the value suddenly collapses, harming small retail investors.
Giving investor lobbyists more leeway to push for deregulation in a supposedly independent federal agency will only strengthen monopolistic efforts in the crypto exchange platform market. To avoid this, cryptocurrencies as a policy area should be included within the CFTC on a nonpartisan basis.
The CFTC plays an important role in the expansion of cryptocurrencies and stablecoins, and its separation from the presidential administration’s sphere of influence is critical. The CFTC has the authority to regulate virtual currency derivatives, including futures contracts, and the computer chips needed to operate and implement virtual currencies. Everything from who, when, and how consumers transact in cryptocurrencies is monitored and regulated by the CFTC, making it the most fundamental institution in global growth. So, while cryptocurrencies technically have no government oversight, the aspects that keep them going and growing are regulated by the CFTC.
Unfortunately, the CFTC has become a victim of politicization, and in line with Trump administration policies, the CFTC has rescinded regulations on the Futures Commissioner.
If the CFTC continues to strive for political alignment with the president’s political agenda, items such as smart contracts will also be subject to unstable and inconsistent regulation. This is a very slippery slope. If CFTC (and therefore crypto products) becomes part of the political agenda, political instability and volatility will reduce the productivity and standardization of the crypto derivatives market.
To counter crypto polarization, we need to avoid straight voting on future crypto issues, learn the costs and benefits of organized crypto integration, and make our own decisions about what we deem appropriate. Discounting party identity views on cryptocurrencies can help its best parts bloom.
Protecting cryptocurrencies from the gridlock and confusion associated with partisan politics will allow the planet and its investors to enjoy the full potential of this innovative technology.
Stephanie Bouserhal is an opinion columnist who writes about cryptocurrencies in her column “Crypto Critiques.” She can be reached at scbous@umich.edu.
