Blockchain
3 reasons why cryptocurrencies are suddenly a major political issue
Cryptocurrencies are becoming hot politics in an important election year
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Cryptocurrencies continue to have a strong year as 2024 approaches the halfway point. With funds continuing to flow into bitcoin ETFs, Ether ETF approval after May and ongoing institutional adoption, the business case for cryptocurrencies looks set to continue to improve. In addition to the positive sentiment and private market-driven trends, however, there has been a sudden turn towards cryptocurrencies in political circles as well. Perhaps driven by the positive news of FTX’s bankruptcy (though this should be taken in context), or by the knowledge that the SEC under Gensler’s chairmanship will not stop its seemingly never-ending crusade to regulate cryptocurrencies through enforcement, US politicians responded in a major way.
The passing of FIT21 in the House of Representatives, presented to the Senate, is the latest sign that cryptocurrencies are increasingly a political issue, impartial and affecting voters, investors and politicians alike. Furthermore, the fact that the House has approved a bill to this effect ban the Federal Reserve since the issuance of a CBDC indicates that policy overreach is slowly being recognized and addressed.
Another high-profile and surprisingly bipartisan action taken related to cryptoassets in the United States was the repudiation of SAB 121, An SEC has issued a staff accounting bulletin that would make it more complicated and expensive for financial institutions to hold cryptoassets on behalf of clients. Despite resistance from the industry and even from SEC Commissioner Hester Peirce, it took time for the issue to reach the level of attention of Congress. The fact that, even in an election year that looks set to be one of the most divisive in modern history, Congress acted quickly and in a bipartisan manner highlights the following; Cryptocurrencies represent a major political issue for voters and investors.
Let’s take a look at some of the reasons why this happens and what cryptocurrency investors should keep in mind going forward.
Cryptocurrencies will change the financial system
The most obvious reason why cryptocurrencies have quickly become a hot topic in political circles is that, as TradFi moves into the space, there is growing awareness that cryptocurrencies will change and influence the US (and global) financial system in the future. Regardless of the price performance of bitcoin or any other specific token on any given day, the fact remains that tokenized transactions and tokenized financial instruments seem like the way forward for both investors and institutions. A small example of this is the announcement that former President Donald Trump’s campaign (seeking re-election after his 2020 defeat) is the first political campaign by a major US political party to accept crypto donations.
Large-scale changes can be observed across different aspects of banking and payments infrastructure. PayPal
PayPal
The issuance of a native stablecoin, after years of slowly integrating crypto options into its widespread payment network, is just one of the payment processors accelerating cryptocurrency adoption. Having retreated in the aftermath of FTX, both Visa
Visa
and Mastercard
MasterCard
Have reinvigorated efforts on both enterprise blockchain and crypto payments. Last but not least, Stripe has reintroduced stablecoin payments via a partnership with Circle.
Cryptocurrency payments, here to stay, are growing and are increasingly accessible even to novice crypto enthusiasts.
Cryptocurrencies drive innovation
One of the most prominent criticisms leveled at cryptoassets and blockchain in general is that the money and time invested in these projects could be better allocated elsewhere. Setting aside the extremely low probability that politicians are good at picking winners and those they pick – it has never worked well in the past – this position is also flawed. In addition to the changes and improvements that tokenized assets and payments are already bringing to the financial space, the continued development and investment in cryptoassets is manifesting benefits in other economic areas.
Renewable energy is one such example, and even as the debate over alternatives to fossil fuels has become politically intense, cryptoassets remain an important part of these conversations. By acting as oscillating producers/consumers of electricity, cryptocurrency miners and other operators can help mitigate peaks and deficits caused by extreme weather conditions. Furthermore, bitcoin miners – as reported by the Bitcoin Mining Council – are already using approx 60% of the total energy consumed by non-fossil fuel resources. With policies like the Inflation Reduction Act aimed at increasing non-fossil fuel consumption, policymakers should embrace the already (in many cases) green cryptocurrency sector.
Cryptocurrencies improve privacy
Privacy has been the subject of political debate, congressional hearings, and multiple other forms of oversight and criticism since social media platforms gained such an outsized role in how individuals and businesses interact, learn, and interact with each other. . This initially narrow focus on social media has expanded to include virtually every aspect of digital commerce and life in the United States.
Concerns have increased recently that as several US regulators, including the SEC and OCC, have stymied crypto-native innovation that the potential of a central bank digital currency will continue to advance towards reality. With well-founded fears of total, instantaneous and permanent insight into and access to all transactions touching the US CBDC network, resistance against such a possibility has increased. Some, if not a considerable percentage, of recent rejection and policy progress is a response to inaction in other aspects of the US regulatory apparatus.
Cryptocurrencies are here to stay and US politicians are finally starting to take notice.