With just weeks to go before the U.S. elections, both Donald Trump and Kamala Harris are turning their attention to an emerging but controversial sector: cryptocurrency. As both candidates jostle for every last vote and dollar, they have increasingly mentioned the potential of digital assets, coupling it with references to artificial intelligence (AI) as part of a broader push for technological innovation. However, the topic is not without its complexities, with critics highlighting risks that range from speculation to scams.
While Trump’s involvement in cryptocurrency appears more conspicuous, given his promotion of NFTs and a crypto-lending platform tied to questionable ventures, Harris’s comments on digital assets also raise eyebrows. Both candidates’ willingness to embrace crypto seems at odds with the significant volatility and regulatory concerns that have long plagued the sector.
The Rise of Virtual Currencies: Innovation or Speculation?
Cryptocurrencies, which exist outside traditional banking systems, have undeniably transformed financial markets for some. For example, a staggering 110,591 Bitcoin wallets hold over $1 million each, representing a remarkable shift in how wealth is accumulated and stored. Yet, for the vast majority of people, crypto remains more of a speculative asset than a revolutionary technology.
Data from the European Central Bank paints a revealing picture: only between 2% and 8% of Europeans owned cryptocurrency in 2022, and most of them didn’t use it for everyday purchases. Instead, crypto was primarily held for “investment purposes,” underscoring its role as a risky, volatile asset rather than a viable alternative to cash. This sentiment is mirrored globally, with countries like Brazil reporting similar trends.
“Crypto is just another way that people like to speculate, because they like to speculate,” portfolio manager Steve Eisman told Odd Lots in April.
A Market of Boom and Bust
The volatility of the crypto market is hardly a new phenomenon. After ballooning to a market value of $2.8 trillion in 2021, the sector suffered a dramatic collapse in 2022. NFTs, stablecoins, and other crypto derivatives lost significant value, drawing comparisons to traditional banking crises. Despite a partial recovery, with Bitcoin prices rebounding by 45% in 2023, the resurgence has been driven by traditional financial tools like spot exchange-traded funds (ETFs) and anticipated interest-rate cuts, not new groundbreaking innovations.
Trump’s promotion of a speculative crypto-lending platform raises further concerns. The platform has ties to past failed projects, and its lack of transparency has led to warnings about potential risks.
Add to this the environmental concerns linked to Bitcoin mining, a string of high-profile bankruptcies, and a staggering $5.6 billion in scams reported in 2023, and the picture becomes murky. Trump’s comparison of cryptocurrency to transformative technologies like the lightbulb, airplanes, or AI feels overly optimistic, especially when considering the uncertain future of even corporate blockchain technologies.
The Political Appeal of Crypto
Despite these challenges, there is a political dimension to talking up crypto “innovation.” The industry is keen to reduce regulatory scrutiny that could impact profits, with companies like Coinbase locked in legal battles with the Securities and Exchange Commission (SEC). Regulatory concerns loom large, as 30% of Coinbase’s revenue is potentially at risk in its ongoing dispute.
In this context, it’s no surprise that the crypto industry is turning to high-profile political figures for support. George Osborne, a former UK finance minister, is now working with Coinbase, joining an estimated 200 former government officials involved in the crypto industry as lobbyists or investors. Their goal? To push for more favorable regulations that could spur further market growth.
But the road ahead is uncertain. As central banks, including the European Central Bank, explore their own digital currencies, the future of private cryptocurrencies hangs in the balance.
While Kamala Harris has stressed the need for consumer and investor protections, Trump seems less concerned with oversight, aligning with his controversial ventures into social media and even silver coins. As the U.S. election nears, financial innovation, particularly in crypto, is set to become an even more contentious and political issue.