The crypto industry is closely watching the midterm elections. Here’s what it looks for
by Arthur · November 4, 2022
The midterm elections are next week, and some investors are watching the outcome closely to get an idea of how the next congressional lawmakers will approach cryptocurrency over the next two years. The industry has long been frustrated by the lack of a clear governing body, old laws they say should be modernized for a digital-first world and a general lack of understanding of the complex technology underlying cryptocurrencies that leads to misconceptions that can harm the market. Crypto has exploded in popularity and growth in recent years, catching governments off guard. Legislators and regulatory agencies have sought to sharpen their understanding of the new sector, while the industry itself has stepped up lobbying. There is a good chance that the mid-term election will hardly affect the price development in the days that follow. However, many investors are taking a longer look at what the poll shows. “While elections don’t drive the long-term path of markets, they can influence how people think about risk,” said Callie Cox, US investment analyst at eToro. “This is why we’ve historically seen stronger fourth quarters in election years. As a riskier asset class, crypto is obviously part of that equation.” Citigroup analysts noted that the US government has been actively working to increase its regulatory footprint in the crypto industry – highlighting President Joe Biden’s executive order at the start of the year, as well as several key proposals introduced by Congress since then. They say the midterm elections and the new shape of Congress could affect how the legislative process plays out. “While we think it’s worth noting that crypto laws introduced by various congressional committees have been a rare example of consistent bipartisanship in Washington, DC, regardless, enforcement actions via the SEC, CFTC, and US Treasury (among other regulatory agencies) are, in the meantime, likely to continue to establish the ‘rules of the road’ across the crypto regulatory landscape,” commodity analyst Aakash Doshi said in a note on Thursday. Chris Kline, co-founder and CEO of Bitcoin IRA, agreed that a short-term reaction may be a lot to ask, but that the election will still drive the policy outlook for the next two years. “The results are going to influence action and some of that in the long term may be crypto – that’s going to be part of that conversation,” he said. “It’s never been this important or on the minds of politicians and voters until recently. These are ways they can define how they make themselves the party people look to.” A Harris poll last week sponsored by crypto investment firm Grayscale showed that 38% of US voters will consider the candidate’s position on crypto in the interim and more than half, (53%), see crypto as the future of finance. While the bear market has dominated headlines this year, the drumbeat for crypto regulation has gotten much louder, providing some comfort to members of the crypto industry. As part of the effort, three two-pronged bills have been proposed that many investors and entrepreneurs are closely watching: the Lummis-Gillibrand Responsible Financial Innovation Act, which would create a standard for determining which crypto-assets are commodities and which are securities; The Digital Commodities Consumer Protection Act of 2022, which would give the CFTC regulatory authority over crypto; The Digital Commodity Exchange Act, which would similarly give the CFTC most of the authority to regulate cryptocurrencies. While there has been a strong effort from both sides of the aisle to join the crypto conversation, Republican attitudes toward innovation in the industry have been more favorable. “At the margin, the market is likely to view GOP gains favorably,” said Matt Hougan, chief investment officer at Bitwise Asset Management. “Crypto shouldn’t be a partisan issue, and it isn’t — most crypto-related bills have been bi-partisan. But at the margin, the GOP’s bent toward lighter-touch regulation reduces the risk of extreme regulatory outcomes.” “From a regulatory perspective, it’s most important we can get in crypto clarity,” added Hougan. “There is a bipartisan push for better crypto legislation in Congress right now, and before Congress came to an election-related standstill, a number of significant bills were working their way through the system. I hope that no matter what happens, we see lawmakers take up debates around things like stablecoin regs and push us toward greater clarity.”
