What Trump’s Win Could Mean for Digital Assets

• The Trump administration is expected to be crypto-friendly, and regulatory changes could be beneficial to the digital asset ecosystem. 
• Some changes may take longer than others. 
• Blockchain, financial, and payments companies may see tailwinds.

I recently had the pleasure of talking with Galaxy Asset Management’s Head of Liquid Active Strategies and the portfolio manager of our actively-managed SPDR Galaxy ETFs Chris Rhine about the evolving regulatory backdrop for crypto and digital assets now that Donald Trump has won the US election and his new administration has started to take shape.

With Trump reclaiming the US presidency,¹ we talked about how change is coming to the White House — and likely favorable change to the regulatory environment for digital assets. This enthusiasm about the future of crypto under a Trump administration was reflected in the spot price of bitcoin as the cryptocurrency kept refreshing all-time highs in the days following the election, eventually reaching $90,000.²

And, Trump’s election — and the Republicans’ sweep of the White House, Senate, and the House³ — may make way for a paradigm shift that bodes well for the entire digital asset ecosystem, not just cryptocurrencies.

Change Under Trump: Digital Asset Policy and Regulation

Trump has said he wants to make the US the “crypto capital of the planet.”⁴ With the help of a Republican-controlled Congress, investors can reasonably expect more progress to come in creating a strong regulatory framework for digital assets. And some companies may start preempting those legislative changes.

How might digital assets legislation and market participation change under Trump?

So Long, SAB 121

SAB 121 is SEC guidance released in 2022 that requires crypto assets held on behalf of clients to be counted on public companies’ balance sheets. It significantly limits the ability of large financial institutions to provide custody services for crypto assets, as doing so would impose even higher capital requirements on banks.

Earlier this year, the legislation was overturned with bipartisan support by both the House and Senate,⁵ but that resolution was subsequently vetoed by President Biden.⁶ Now, it’s expected that the SEC will ease SAB 121 applicability if not withdraw it completely. Under a crypto-friendly Trump presidency and Republican control of Congress, the repeal of SAB 121 appears all but inevitable.

More Regulatory Clarity

Whether a digital asset is classified as a commodity, currency, or security has been unclear to many market participants — but their classification heavily dictates how they’re regulated.

Earlier this year, on May 22, the House passed the Financial Innovation and Technology for the 21^st Century Act (FIT21) and it’s now awaiting a vote in the Senate.⁷ Though it’s uncertain whether the Senate will pass FIT21, at the least, it will help shape a future digital asset market structure and regulatory framework. And that future framework is expected to clarify the regulatory responsibilities of agencies like the CFTC and SEC and also update existing regulations to account for blockchain applications in the financial sector.

Unclear regulatory frameworks around crypto have historically been a headwind for digital assets overall, and regulatory agencies have been criticized for taking a “regulation by enforcement” approach under the Biden administration.⁸ More defined regulation could help change that. But it will likely take time. Under a unified Republican Congress, it’s more likely the new administration will spend the first 100 days on other priorities, including trade and taxes.⁹

New Administration, New Regulatory Heads

In the days following the November 5 election, Trump began announcing staffing and who’d be joining his administration. Investors can expect changes at bank and market regulatory agencies like the SEC,¹⁰ CFTC,¹¹ OCC, and FDIC. SEC Chair Gary Gensler, for example, already has announced he’ll be stepping down Jan. 20, 2025.¹²

With potential new crypto-friendly leadership in place, those agencies likely will ease their stance on crypto-related regulations, roll back enforcement actions, and take a more pragmatic approach to supporting healthy growth of the crypto industry. The pace of IPO by crypto and digital asset-related companies in the US could also pick up, with potential crypto-friendly SEC leadership, which would expand investment opportunities for public equity investors.

Longer term, more cooperation among agency leadership on how to regulate digital assets and classify them under the law will bring clarity for industry participants, companies, and investors.

A New Dawn for Digital Assets Ahead?

A clearer regulatory outlook, and a new administration friendly towards digital assets, could promote adoption and expand use cases of blockchain technology in the US. This likely would encourage more companies to develop new products and services on public blockchain — and that could further transform traditional finance (TradFi).

Use cases that could expand include:

• Payments. Payments using digital assets could rise as payment platforms using blockchain technology can provide customers near-instantaneous settlement at lower costs than existing payment platforms. Easing regulation may lower the barrier for new entrants to disrupt the payment industry.
  
  Given high fees charged by traditional payment intermediaries for cross-border payments, new entrants using blockchain technology may pose a threat to incumbents. Consequently, big players may feel pressured to adopt on-chain payment technology quickly to remain relevant.
• Asset tokenization. With a clear regulatory framework and open-minded supervisory agencies, financial services like asset managers, broker dealers, and banks may become more directly engaged on the public blockchain and take more aggressive actions in developing tokenized assets and providing services to support them.
  
  Asset tokenization can help improve the efficiency of securities issuance, servicing, and settlement and potentially provide greater liquidity and accessibility to alternative assets through process automation, fractional ownership, and enhanced transparency. For example, tokenization of private equity funds may streamline the operational processes required to distribute fund shares to individuals at scale.
• Collateral management. Asset managers, clearing firms, and major banks have already shown increased interest in applying blockchain technology to the collateral management process. The technological benefits, like enhanced accessibility, operational efficiency and speed, may enable faster and more efficient collateral movement through smart contracts, especially during times of market turmoil.

More regulatory clarity on decentralized protocols in the financial market may accelerate the pace of adoption in the collateral management industry.

Don’t Forget Downside Risks

The outlook for the digital asset ecosystem under the new administration appears positive. But what are the risks? Ultimately, it’s investors’ fear of missing out (FOMO) that could cause volatility and large price moves.

Bitcoin, for example, has a very limited supply and average low-cost basis. As new money floods into digital assets and crypto as a result of new regulations, that sea change could create an environment where the market could go “absolutely parabolic,” Rhine says. Active management could help investors manage risk amid volatility. Over the long term we expect to see continued downward trends in crypto volatility as more institutional investors get involved.

Curious about digital assets? See what experts have to say on the future of digital assets, and how active management of digital asset and crypto investments can help investors make sense of this evolving market.

About Chris Rhine