Republican control of Congress and Trump's team's support for cryptocurrencies could drive policy changes in the U.S. crypto industry, including bank custody of digital assets and relaxed market regulation.
Original title: (Entering the Digital Golden Era)
By Alex Thorn
Translated by: Daisy, Mars Finance
The digital asset industry is on the brink of a golden age. Cryptocurrencies in the United States are poised for a new regulatory approach and more support in both houses of Congress and the White House. The industry has flexed its political muscle, sending a powerful warning to its enemies that will have repercussions across the political spectrum. The severe headwinds that have hampered industry progress and increased legal costs over the past four years have abated, and the crypto industry is now riding high in the world’s largest capital market.
About Tuesday Night
President-elect Donald J. Trump made history by becoming only the second president in U.S. history to win a second non-consecutive term. The only other president to have done so was Grover Cleveland, who won a second non-consecutive term in 1892, defeating Benjamin Harrison. Back then, the anti-tariff, pro-gold standard Democrat returned to power; now, the pro-tariff, pro-Bitcoin Republican has won a second non-consecutive term in 2024. History often draws parallels.
Trump's victory also has historic significance in the modern era. His electoral vote tally is projected to top 310, up from 306 in 2016. He became the first Republican since George W. Bush in 2004 to win a majority of the national popular vote. Trump once again won the "blue wall" states of Pennsylvania, Michigan and Wisconsin, similar to 2016, but he will likely also win Nevada, which Hillary Clinton won in 2016. In Florida, Trump won by a staggering 13 percent, a performance partly attributed to changing demographics in the state over the past few election cycles. This heat map from Bloomberg shows how more than 95% of ballots were reported in each county, and the changes from 2020 to 2024 for Republican and Democratic presidential candidates. Significant increase in redness.
Source: Bloomberg
The Senate flipped to Republican control, with the final result expected to be 54 seats held by the GOP. Results for the House of Representatives may take longer to come in, but the GOP has a slight advantage and is expected to maintain control of the lower chamber.
Other key points about this election:
The crypto industry flexed its political muscle. In addition to its public efforts to raise the full and far-reaching crypto agenda with President-elect Trump, the industry has gained broad support in the House and Senate. The most notable victory was Bernie Moreno (R-OH) defeating incumbent Senate Banking Committee Chairman Sherrod Brown (D-OH). The Crypto PAC poured tens of millions of dollars into the campaign to defeat Brown. Defeating Brown — an ally of Elizabeth Warren — sent a strong message: There is no going back on opposing cryptocurrencies in politics.
Trump is entering his second term, when presidents typically focus more on complex, cutting-edge issues to build a legacy without the pressure of running again. The size of his victory, which was larger than in 2016, gives Trump a bigger mandate and the support of perhaps the most diverse coalition of Republican voters in decades. That increases the likelihood that Trump will enact sweeping reforms, including a major modernization of the financial system.
Trump's team is very supportive of the digital asset industry. Trump's core team is very supportive of digital assets, and many people openly hold Bitcoin. Vice President-elect J.D. Vance has publicly stated that he owns Bitcoin, Vivek Ramaswamy has been a strong supporter of the industry during the campaign, Robert Kennedy II has been actively and deeply supporting the crypto industry for at least the past two years, and transition team co-chair Howard Lutnick said that he and other members of Cantor Fitzgerald hold a large amount of Bitcoin (Cantor Bank supports Tether), while many major donors are either directly involved in the crypto industry or have a positive attitude towards the asset class and industry. In addition, Trump himself has issued NFTs and launched World Liberty Financial, which is related to the decentralized finance (DeFi) protocol. The pro-crypto attitude of his team, family, and donors increases the possibility that Trump will fulfill his promise to the crypto industry.
Expected policy changes in Washington
Let me paint a picture of where cryptocurrency policy might go in the future:
Banking regulators. Immediately upon taking office, Trump will appoint a new acting director of the Office of the Comptroller of the Currency (OCC) and acting chairman of the Federal Deposit Insurance Corporation (FDIC). These agencies have prudential regulatory authority over banks and insured depository institutions. Perhaps within days, bank regulators may issue guidance that explicitly prohibits unfair targeting of specific industries (similar to Operation Choke Point 2.0), as Trump did when he first took office, while also revoking existing interpretive guidance or letters that are unfavorable to the crypto industry (such as the joint letter of January 3, 2023). Within weeks or months, the OCC may issue guidance that explicitly allows banks to custody digital assets and allows the use, operation, and interaction with public blockchains and stablecoins. (Recall that Trump's former acting OCC director Brian Brooks issued a similar interpretive letter in 2020).
Market regulators. Trump will promote a current commissioner of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to acting chair. While Trump has promised to "fire Gary Gensler," most constitutional scholars believe that the president cannot fire a duly confirmed commissioner of an independent agency. However, the president can immediately designate an existing commissioner as acting head. Soon after the personnel changes, some cryptocurrency enforcement actions may be suspended, some lawsuits may be suspended or withdrawn, and the SEC may issue "no action" letters on specific projects or topics, opening the door for the industry and regulators to discuss a reasonable path forward. More comprehensive rulemaking will take longer, but the crypto industry is expected to receive exemptive relief soon, with the main area likely to be relaxing the SEC's definitions of "security" and "exchange." The CFTC has a similar attitude, but in the absence of comprehensive market structure legislation that clearly defines the regulatory boundaries of the SEC and CFTC, it will be extremely important to ensure that the chairmen of these two market regulators can work together to coordinate progressive policies.
Congressional legislation. The biggest cryptocurrency policy agendas in Congress include: market structure (clarifying the regulatory status and regulators of digital assets) and stablecoins (legalizing and licensing the issuance of stablecoins). In May of this year, the FIT21 bill passed the House of Representatives with a large bipartisan support, and future market structure bills may build on this. The differences between the two parties on stablecoin legislation are relatively small. The main points of contention in the House Financial Services Committee are 1) whether only national banks are allowed to issue, or whether intrastate paths are also allowed, and 2) which (or which) institutions will assume the prudential supervision responsibilities for these issuers.
The key is that if Republicans control the House, we think it is less likely that these bills will advance quickly in 2025. A unified Republican Congress would likely focus the first 100 days of 2025 on tax reform, trade, and other priorities, advancing Republican priorities through budget reconciliation. This does not mean that cryptocurrency legislation will not move forward in the next Congress, but in a unified Congress, we think it will take a back seat to other priorities, necessitating close coordination between Congress and regulators on cryptocurrency policy. Our base case is that crypto legislation will be delayed until the second half of the 119th Congress to allow Cabinet officials and independent regulators to stabilize their positions before engaging in policy discussions with Congress.
Energy policy. If Trump becomes president, especially with Republicans controlling both houses of Congress, domestic energy and electricity production will be extremely positive. This will support Bitcoin miners, data centers, and any entity with a large power supply (including energy producers, of course).
Impact on market participation
As regulatory resistance eases, coupled with specific interpretive letters, “no action” letters, or regulatory guidance, U.S. institutional investors will gain greater exposure to cryptocurrencies.
SEC Relaxes Applicability of SAB 121
If the SEC relaxes the applicability of SAB 121 in September, or even withdraws the guidance, it would pave the way for the world’s largest custodian banks to enter the crypto market. BNY Mellon received the exemption because its main prudential regulator, the New York Department of Financial Services (NYDFS), did not object, while national banks such as Citigroup and JPMorgan Chase & Co. have their main prudential regulator, the OCC. Given that the OCC’s stance on allowing banks to participate directly in cryptocurrencies is likely to change significantly, these large banks will gradually gain access to more opportunities to participate.
Further institutionalization
This will facilitate funding options for crypto assets, make spot cryptocurrencies more widely available through existing institutional trading platforms and relationships, and increase the maturity of the institutional crypto market.
SEC Relaxation of Howey Standard
If the SEC relaxes the applicability of the Howey standard to digital assets, or expands the scope of "crypto-asset securities" that can be traded on broker/dealer platforms, it will allow more institutions to enter the trading market, which may include traditional financial institutions such as banks, exchanges or brokerage firms. In addition, the SEC's relaxation of the applicability of the Howey standard may promote the launch of more spot crypto ETFs in the United States.
Regulatory clarity and inclusiveness
Clear and inclusive regulatory policies will allow traditional financial services companies and investors to operate on-chain for the first time, bringing new opportunities for yield and other investment strategies. Expanded access to public blockchains may also revolutionize transaction efficiency, transparency, issuance, and other aspects of finance. Depending on the regulatory stance and legislation that may be passed, the convergence of traditional finance and decentralized finance (DeFi) may become a reality.
New token forms and an expanding asset ecosystem
If the SEC's position on the Howey standard and token disclosures becomes clearer, we may see a surge in new types of tokens, possibly even equity-like tokens. Existing tokens may also add more equity-like features to enhance their value proposition. An expanded and improved asset ecosystem will support the development of a liquid crypto hedge fund industry, making its investable asset classes more mature and expanding. Improved token disclosure and issuance capabilities will challenge and potentially even disrupt the current SAFT model dominated by VC capital, and improve the liquidity of the crypto market.
Crypto IPO Opportunities
On the venture side, the IPO market could become more open to crypto-native companies, ultimately providing a path for VCs to realize returns through exits. Currently, the only venture-backed crypto startup to go public is Coinbase (aside from a few SPAC listings). If the conditions are right and regulators are supportive, we estimate there could be dozens of crypto companies ready to go public in the U.S.
Bitcoin Market Analysis
Bitcoin traded as low as $66,700 on Monday, November 4, but has since risen 15% to hit a new all-time high. Bitcoin surged to new all-time highs and held in the $75,000 to $76,000 range as the odds of a Trump victory on November 5 increased. Although Bitcoin has gained 15% since Monday and 26% since Oct. 1, the market does not appear to be overheated from a fundamental perspective. Bitcoin surged on Tuesday night following the election news, with the "Coinbase premium" recovering significantly, turning positive for the first time in at least a month.
Bitcoin ETFs have been strong, posting their largest single-day net inflow in history on Thursday, November 7, at $1.375 billion, pushing BTC to a new high. This figure surpassed the previous record of $1 billion in net inflows on March 12, 2024.
The Cyclical Nature of Bitcoin
Looking back at the historical trend of Bitcoin, the current performance of Bitcoin is in line with the trajectory of the previous two bull markets. Measured from the cycle lows (2011: $2, 2015: $152, 2018: $3122, 2022: $15460), Bitcoin's rise is highly consistent with the 2017 bull market, only slightly behind the pace of the 2021 bull market.
Looking back at pullbacks in previous bull markets, the 2024 pullback is much milder than the pullbacks during the 2021 and 2017 bull markets.
Futures and Financing
While open interest in futures contracts on crypto exchanges rose slightly to a new yearly high, funding rates remained largely unchanged, suggesting that these moves were primarily driven by the spot market.
Source: Velo.xyz
Bitcoin options market
Bitcoin options traders are net short gamma between $54,000 and $84,000, which will accelerate price movements. In short, when traders are short gamma, they usually hedge by buying spot when prices rise, or by selling spot when prices fall. This effect can accelerate price movements in either direction and increase market volatility. Conversely, when traders are net long gamma, they do the opposite, selling when prices rise and buying when prices fall, thereby reducing volatility. Our analysis shows that the current maximum short gamma is at $70,000, so this effect will gradually weaken as BTC/USD rises. It is worth noting that many call option holders with high strike prices are currently in profit, and these investors may choose to roll their options to higher strike prices, thereby pushing short gamma to a higher strike price range. The chart below shows our view of options traders’ net gamma positioning for all BTC options expiration dates from November 7th to September 26th, 2025.
Bitcoin fundamentals
The Realized HODL Ratio is a metric that measures the ratio between the 1-week and 1-2 year realized market cap HODL ranges (i.e. the realized value of coins last transferred during these time periods). A higher ratio generally indicates an overheated market, and market tops tend to coincide with this. The sideways movement of RHODL in 2024 looks more like the sideways movement seen in 2019-2020 than any peak activity, suggesting there is still more room to run in the short and medium term.
MVRV Z-score
The MVRV Z-score is a ratio of market value to realized value, along with the standard deviation of market value, to help identify the difference between an asset’s trading value and its overall cost basis. Historically, this metric has been very effective in identifying market peaks, and the current values suggest that BTC/USD is not yet close to overheating or topping territory.
Bitcoin and Global M2
Bitcoin has historically responded to changes in the global money supply. While this correlation is not unique to Bitcoin, it is a trend worth watching if Bitcoin begins to be used more as a hedge asset, as Larry Fink has called for.
Outlook
The arrival of the Trump administration, coupled with a strong Republican Senate able to confirm his agency appointments, is a positive for deregulation in the U.S. crypto industry. We expect some form of exemption relief to be forthcoming soon, but a more solid supportive regulatory framework may take more time to develop. A loosening of the regulatory enforcement environment, coupled with progressive policy thinking, will pave the way for traditional financial services firms and institutional investors to participate more deeply in this asset class. This will challenge the moats of existing crypto infrastructure businesses, but will also broadly support the expansion and maturation of the asset class. In this environment, we expect Bitcoin and other digital assets to trade at levels significantly above their current all-time highs over the next 12-18 months.
