Trump Joins the Crypto Boom. Will He or Harris Regulate It?

Cryptocurrency, once on the fringes of finance, is poised for a breakthrough year in 2025. A single version of cryptocurrency already processes more money per day than the entire Visa credit card system. And both U.S. presidential candidates and Congress are increasingly recognizing the potential and pitfalls of this rapidly growing form of money.

On Monday, former President Donald Trump is expected to highlight the prominence of cryptocurrencies by publicly announcing the launch of his sons’ crypto project, known as World Liberty Financial.

Why we wrote this

Lawmakers often struggle to keep pace with emerging technologies, disagreeing on whether and how to regulate them. But there is a growing bipartisan appetite for restrictions on cryptocurrency.

Crypto was originally conceived as a digital currency that would democratize both investment and lending. Instead of securing value and transactions through government intervention, it did so through innovative technology. That could be a boon to commerce, but it has also attracted unwelcome elements, including terrorist organizations.

Increasingly, players in this emerging high-tech industry, once proud of its nonconformity, are pushing for the opposite: federal regulation.

Increasingly, American lawmakers, who want the United States to maintain its lead in a potentially transformative digital technology, are listening.

Whoever wins the presidential race, “next year is going to be a big year for digital assets,” said Sen. Cynthia Lummis, a Wyoming Republican and cryptocurrency advocate on the Senate Banking Committee.

Cryptocurrency, once on the fringes of finance, is poised for a breakthrough year in 2025. A single version of cryptocurrency already processes more money per day than the entire Visa credit card system. And both presidential candidates and Democrats and Republicans in Congress are increasingly recognizing the potential and pitfalls of this new and rapidly growing form of money.

On Monday, former President Donald Trump is expected to highlight the prominence of cryptocurrencies by publicly announcing the launch of his sons’ crypto project, known as World Liberty Financial.

Crypto was originally conceived as a digital currency that would democratize both investment and lending. Instead of securing value and transactions through government intervention, it did so through innovative technology, allowing funds to move around the world at high speed and low cost.

Why we wrote this

Lawmakers often struggle to keep pace with emerging technologies, disagreeing on whether and how to regulate them. But there is a growing bipartisan appetite for restrictions on cryptocurrency.

That could be a boon for trading, but it has also attracted some nasty elements – from Sam Bankman-Fried’s fraudulent FTX company, which went bankrupt in 2022, to drug cartels and terrorist organizations that have taken refuge in a dark underworld of cryptocurrencies.

Now, legitimate crypto companies are trying to differentiate themselves from “bad boy” operators. So a growing number of players in this once proudly nonconformist emerging high-tech industry are now pushing for the opposite: federal regulation.

American lawmakers are increasingly listening. As the crypto space grows in size and influence, they worry that another high-profile collapse of a fraudulent crypto exchange or currency could throw the traditional financial system into disarray. And pro-crypto lawmakers want to ensure that the United States maintains its lead in a new and potentially transformative digital technology.

“We need to have a complete regulatory framework so that the industry doesn’t move to Europe,” said Sen. Cynthia Lummis, a Wyoming Republican and cryptocurrency supporter on the Senate Banking Committee. She is cautiously optimistic that she and her colleagues can pass legislation before the new Congress begins in January. “But next year is definitely going to be a big year for digital assets.”

Sen. Cynthia Lummis, R-Wyo., speaks during a hearing of the Senate Environment and Public Works Subcommittee, April 5, 2022, on Capitol Hill in Washington. Sen. Lummis, a cryptocurrency advocate, also sits on the Senate Banking Committee, which plays a role in determining the currency’s future.

The latest evidence of growing interest comes from the presidential campaign. The current GOP candidate, Mr. Trump, a skeptic four years ago, fully embraced cryptocurrency in July, calling for a national strategic reserve of the digital currency. Democratic nominee and Vice President Kamala Harris has not discussed the topic, but her staff has reached out to the industry, and her campaign, like Mr. Trump’s, is benefiting from funding from pro-crypto groups. On Friday, a group of crypto advocates for the Democratic nominee, called Crypto4Harris, held the first of at least five fundraisers for her.

An emerging industry or a pyramid scheme?

The growing political attention and intensified fundraising and lobbying efforts by segments of the industry suggest that Congress is finally ready to regulate the industry in a comprehensive manner, replacing the current piecemeal approach by federal and state regulators.

Regulation could also help the industry by making it harder for fraudsters to operate, research suggests. Last year, cryptocurrency schemes’ losses increased nearly 50% from the year before, and Americans were scammed out of more than $5.6 billion, according to the FBI. One study found that more than 70% of trades on cryptocurrency exchanges not regulated by any state were illusory — with purchases made and then immediate sales made to artificially inflate the exchanges’ sales volume. Another study found that requiring periodic disclosures makes exchanges more efficient and manipulation harder.

Such problems fuel the skepticism about cryptocurrencies, which remains widespread. Critics call the digital money a giant pyramid scheme, from which no one profits except criminals.

“There is no there there,” says Joel Mokyr, an economic historian at Northwestern University in Evanston, Illinois. People trust that currencies — dollar bills or euro bills — will hold their value because they are issued and backed by responsible governments. By contrast, trusting that a set of computer codes will hold its value simply because others trust it creates the basis for a financial bubble, he adds. “It will collapse on its own.”

Challenges of regulation

Part of the challenge for lawmakers is that while cryptocurrency is simple to define, it is difficult to categorize.

Democratic presidential candidate and U.S. Vice President Kamala Harris holds a campaign rally in Greensboro, North Carolina, Sept. 12, 2024. Ms. Harris did not address the topic, but her campaign has benefited from funding from pro-crypto groups.

A cryptocurrency is a form of digital money that also automatically keeps track of every transaction. These transactions are recorded in a way that anyone can look them up and verify them using a technology called blockchain. This makes the currency difficult to counterfeit.

This security and transparency has helped cryptocurrency explode in popularity. And because new cryptocurrencies are minted through a process that requires a lot of time, energy, and expensive computing power, the supply is limited. This growing demand and limited supply has caused the value of many of the most popular versions of these currencies to explode. The first and most popular version, bitcoin, was worth a fraction of a cent when it first began trading in 2009; today, one bitcoin is worth over $55,000.

Now that market forces, not government, determine value, many people are buying bitcoin and other cryptocurrencies with volatile values. They hope their value will increase, like a speculative stock. Others buy them as a hedge against inflation, like gold. This multi-use makes bitcoin and its competitors harder to regulate. Should they be regulated like stocks? Or like commodities, like copper or oil? Or do they need an entirely new federal agency to regulate them?

Another version of cryptocurrency, known as stablecoins, is simpler. Their value is tied to a real currency, often the U.S. dollar. If widely adopted, they could fly dollars, euros or Chinese yuan around the world, speeding up international trade and person-to-person transactions — for example, allowing immigrants to send money home at a low cost.

But the same technology also facilitates illicit activity, whether it’s foreign countries evading Western sanctions or criminals moving money without the hassle of carrying suitcases full of cash. A Wall Street Journal investigation published last week found that a dollar-pegged stablecoin called Tether is enabling internet scammers, Hamas and other U.S.-designated terrorist organizations to launder money. Tether transactions already outpace Visa.

That’s why some in the crypto industry believe stablecoins will be the first target for sweeping legislation. Proponents of the technology say Congress has an opportunity to boost legitimate digital commerce while cracking down on digital crime.

It’s always a challenge for Congress to keep pace with rapidly evolving and complex technologies. But Washington’s understanding of cryptocurrency “has come on leaps and bounds in recent years,” particularly stablecoins, says one crypto industry executive who requested anonymity so he could speak candidly about the political landscape for cryptocurrency.

Republicans on Capitol Hill are generally ahead of their Democratic counterparts in understanding the technology’s potential. But Democrats are more likely to push for regulations that rein in companies with poor or illegal financial controls. To be effective, the executives added, “this really has to be bipartisan.”

And so far, that’s been the case. “There are members of Congress on both sides of the aisle who see this (potential legislation) as a win-win,” said Tonya Evans, a law professor at Penn State University and author of the book “Digital Money Demystified.” “I’m actually more optimistic” about legislation in 2025 than I was a year ago, she added.

The presidential election could push Congress in that direction. If Mr. Trump wins, he is expected to push for crypto-friendly legislation and end the aggressive stance the federal Securities and Exchange Commission has taken against some crypto companies. Some crypto enthusiasts say that Ms. Harris, while so far tight-lipped on the issue, may be more open to high-tech innovation than President Joe Biden, given her background in California politics.

“We’re really reading the tea leaves, but I’m encouraged,” said Ms. Evans, a speaker at a Crypto4Harris event last month. “You don’t win multiple state elections in California without being technologically progressive.”

Contributor Christa Case Bryant contributed to this story from Washington.