It’s a crypto election, but institutional investors have already voted

There is some controversy, to say the least, over the number of American adults investing in cryptocurrencies. According to a Federal Reserve report released in May, 18 million did so last year. That’s about 7% of the U.S. adult population.

Other estimates go a bit further. A study by Triple A, which aggregated data from 16 other reports, puts the number of cryptocurrency investors in the United States at 50 million. Another report by Security.org puts the number of U.S. adults at 40%, which would equate to about 100 million investors.

Michael Novogratz, founder and CEO of Galaxy Digital, said there are “more cryptocurrency owners in America than dog owners.” The viral meme lists over 65 million cryptocurrency investors in the United States.

There is no doubt that, whatever their numbers, cryptocurrency investors are more than enough to constitute a significant demographic segment of the US presidential election, which is expected to be very close. Winning the votes of cryptocurrency investors or dog owners could tip the scales in favor of the election outcome.

Talk of a crypto election isn’t as far-fetched as one might think. These elections could have significant implications for cryptocurrency regulation and the evolution of the digital asset industry as a whole as it moves toward broader (mass) adoption.

Donald Trump’s recent appearance at the annual Bitcoin conference in Nashville is proof of this. Trump told the audience that his goal was to make “America the world’s bitcoin superpower” and that “my job is to set you free.”

He promised that regulations should be “written by people who love your industry, not people who hate it.” Just three years ago, he was the one hating the industry, describing bitcoin as a scam that would hurt the dollar. Trump now calls himself “the first crypto president” if elected.

It’s not just Republicans

Trump isn’t the only one who’s changed his mind. Democrats are making similarly positive comments about cryptocurrencies and the broader digital asset sector. While cryptocurrencies weren’t a major topic at the Democratic National Convention (DNC) last week, Congressman Wiley Nickel (D-NC) told Bitcoin Magazine that 28 Democrats, including 14 members of Congress, wrote to the DNC advocating for the Harris-Walz bill and the party is taking a new approach to digital asset policy.

More than a dozen Democratic lawmakers and candidates, including Senate Majority Leader Chuck Schumer (D-N.Y.), Sen. Kirsten Gillibrand (D-N.Y.), and Sen. Debbie Stabenow (D-Mich.), spoke on the Crypto4Harris conference call. They were joined by industry leaders like billionaire Mark Cuban and Sheila Warren, CEO of the Crypto Council for Innovation.

Leading Democrats, including former House Speaker Nancy Pelosi (D-CA), have joined Republicans in backing a bill that would place cryptocurrencies under the regulatory oversight of the more crypto-friendly Commodity Futures Trading Commission (CFTC) instead of the Securities and Exchange Commission (SEC). Pelosi said in a statement, “The digital asset industry needs clearer rules of the road, and the federal government needs stronger oversight to ensure the responsible development of this emerging technology.”

Attitudes are changing with the House and Senate voting to repeal the SEC’s Staff Accounting Bulletin 121 (SAB 121), which requires regulated institutions holding customer cryptocurrencies to treat those assets as liabilities on their balance sheets.

Among the Democrats who led the vote to repeal the ballot measure was Schumer, who, if the Democrats win in November, would be a major influencer on digital assets. Major banks and financial institutions have pushed for the repeal of SAB 121, highlighting how institutions are changing their attitudes toward cryptocurrencies and digital assets.

President Biden vetoed the bipartisan overturn of SAB 121, which would now impose significant capital requirements on banks that deal in cryptocurrencies and digital assets, a hurdle that creates an uneven playing field in the industry.

Regulators’ assessment

Donald Trump promised at the Nashville conference that he would fire SEC Chairman Gary Gensler on day one if he wins the election. That promise was so well received that he repeated it and admitted to being surprised by the strength of the reaction. Leading Democrats were also apparently surprised.

Politicians might not have been so surprised if they had been more involved in the cryptocurrency industry outside of election campaigns. It’s not hard to find cryptocurrency industry executives who are critical of the SEC.

According to Marc Andreessen of venture capital firm Andreessen Horowitz, cryptocurrency has faced a “brutal assault” under Gary Gensler. “It’s been extremely frustrating and impossible to make progress on this with the White House,” he said.

Most financial institutions wouldn’t have joined in the booing in Nashville. A new global study shows they strongly support the SEC, with 90% saying it has been an effective regulator of the digital asset industry and 85% saying it is somewhat or very supportive of the industry currently.

The study by Nickel Digital, the leading regulated digital asset hedge fund manager in Europe, shows that there are more nuanced views on the role of the SEC in the cryptocurrency sector and a broader recognition of the role of regulation with financial institutions in the global market.

The study surveyed institutional investors and wealth managers collectively managing $1.7 trillion in assets across the United States, United Kingdom, Germany, Switzerland, Singapore, Brazil and the United Arab Emirates and spoke to those already invested in the cryptocurrency and digital asset sector.

Four in five respondents (80%) said the SEC has clearly distinguished between securities and non-securities in the digital asset space, and that regulatory clarity from the SEC is important to the industry, with 83% saying the SEC’s regulatory action would have a very or somewhat positive impact on digital asset innovation.

Only 5% of respondents said the SEC was not constructive or was too restrictive.

Three in four (75%) companies surveyed say the “risk of bad actors” has been reduced by regulatory measures, with 20% believing the risk has significantly decreased. Concerns remain about the risk of a new scandal. Around 18% of companies surveyed say the risk remains unchanged despite regulatory measures, while 7% believe it has actually increased.

Interestingly, institutional investors are already detecting some signs of political change. 68% expect the SEC to be more lenient, compared to 35% who expect stricter regulation. More than half (53%) expect greater clarity and more specific guidance, while 44% believe the regulator will be more constructive, reflecting political changes.

Anatoly Crachilov, CEO and Founding Partner of Nickel Digital, commented on the survey: “The stringent regulatory actions taken against FTX and Binance have helped to boost confidence in the digital asset sector. Our survey reveals that institutional investors and wealth managers now expect more lenient regulation of the sector by the SEC after a period of intense scrutiny. It is reasonable to assume that a more accommodative regulatory environment will drive growth of the asset class in the United States.”

Regulation is important in a global market

In many ways, the key finding of the study is that only 35% of investors say SEC regulations have a significant impact on their investment decisions in the digital asset sector, with 55% saying the regulations have a moderate impact and 10% saying they have a slight impact.

The market is bigger than the US and certainly bigger than the SEC. Investors surveyed believe Europe is the jurisdiction most likely to lead the way in the development of stricter regulation over the next five years, with 31% choosing it compared to 24% choosing the US. Only 18% chose Asia, while 15% chose the UK and 12% the Middle East.

Regulatory measures are helping to boost sentiment towards the sector, according to the study, with 88% of respondents reporting positive views on the sector and 12% reporting neutral views. Momentum for investing in the crypto and digital asset sector is growing among institutional investors and wealth managers, with around 80% saying they will increase their investments in the coming year, building on this year’s increases.

Most importantly, they are positive about the short- and long-term outlook for the sector. Nearly all (98%) believe that investment opportunities in the crypto and digital asset sector are attractive for the year ahead, with 32% rating them as very attractive. Nearly all (97%) say the same for the next five years, with 44% saying the sector is very attractive.

These findings are consistent with recent research conducted among financial institutions in the United States, Asia, Europe and the Middle East by Global Digital Finance (GDF), which found that almost all (93%) indicated that they were now dealing with bitcoin in some form, including as part of “test runs” of the digital asset sector.

An impact study commissioned by OKX and published this week by the Economist is titled “Institutional investment in digital assets is inevitable.” The study says there is a growing consensus among institutional investors that digital assets, such as cryptocurrencies, NFTs and tokenized private funds, are a significant part of portfolio asset allocations, where average allocations currently typically range between 1% and 5% and are expected to increase to more than 7% by 2027.

In many cultures, turning 16 is considered a rite of passage. Bitcoin will celebrate its 16th birthday on January 3, 2025. As the cryptocurrency becomes a young adult, the positive sentiment of global financial institutions toward cryptocurrency and digital assets, both in the short and long term, seems likely to survive, regardless of who wins the cryptocurrency election.