Over the past few years, the cryptocurrency industry has experienced significant paradigm shifts in terms of policy and perception. In July, Congress passed the GENIUS Act, a three-pronged set of federal regulations that give cryptocurrency credible recognition in the public sector. However, this leap for the industry was no easy feat: the obstacles to its recognition were determined less by partisan divisions than by broad debates over its regulation and integration. The politicization of cryptocurrency is problematic because it undermines its protection against inflation, gives investors disproportionate influence and hinders its globalization potential.
It may seem that crypto – as an economic entity – is already too intertwined with politics to remain non-partisan. Debates over the deregulation of cryptocurrencies, mostly supported by President Donald Trump’s administration, have dominated crypto news. Republicans and Democrats seem inevitably divided over the future of digital currency. While Democrats advocate for regulation to mitigate fraud, Republicans focus on deregulation to promote free markets.
Yet the reality is that the fundamentals of cryptocurrency align with bipartisan values. Regardless of political affiliation, globalization and financial inclusion – which benefit industrialized and developing countries alike – have mutually beneficial goals. Recent moves in the Senate show that bipartisanship is no reach: Sen. Ruben Gallego, D-AZ; Mark Warner, D-VI; and Kirsten Gillibrand, D-NY, outline proposals to advance crypto legislation. A comprehensive effort to implement cryptocurrency as effectively as possible, while mitigating its excessive negative effects, would enable the nation to fully reap its potential benefits.
The performance of traditional open markets in the United States generally rises and falls with political cycles; When party control and policy orientation fluctuate, investor confidence fluctuates as well. Factors such as election years, party dominance, and economic legislation all play a fundamental role in gross domestic product growth and stock market health. Successful investors understand the volatility of election years and plan their withdrawals carefully, but external factors also impact loan values and interest rates, only adding to the complexity of long-term investing.
On the other hand, one of the main characteristics of cryptocurrency is its resistance to inflation, deflation and disinflationary actions. Indeed, crypto enjoys unique systemic independence from government and central bank functions. Because its correlation with the centralized market is lower than that of other investments, it is less susceptible to political unrest.
However, if the cryptocurrency continues on the path of polarization, it will fall with the rest of the stock market swings and business cycle. Whether or not you invest in cryptocurrency is subject to political influences, leading the pool of crypto investors to shift with the election cycle. To maintain their protection against inflation, stablecoins and cryptocurrencies must stay out of the political spotlight and rely on bipartisan support.
Not only does the politicization of cryptocurrencies deteriorate their market independence, but it also creates conflicts of interest between crypto-related sectors and legislation. A perfect example of this happening is Gemini, a cryptocurrency trading platform that offers US-backed stablecoins, credit cards, and crypto rewards programs. Tyler and Cameron Winklevoss, CEO and president of Gemini, respectively, are showing more outside support for Trump than in the past. Trump is taking advantage of this support by investing $5 billion in cryptocurrency. The United States is supposed to enforce ethics laws to prevent government officials from making personal investments that could impact their decision-making and benefit their own financial interests. In this case, the combination of Trump’s personal and financial ties to Gemini poses a clear conflict of interest.
Additionally, the Winklevosses had a dispute with former Commodity Futures Trading Commission Commissioner Brian Quintenz over how he handled a CFTC lawsuit against Gemini. Afterward, Tyler Winklevoss advised Trump to rethink his nomination of Quintez. Predictably, the administration withdrew its nomination of Quintenz without hesitation, illustrating crypto executives’ sphere of influence over government appointments and regulatory decisions.
This control is a problem because it can lead to unfair regulatory actions, potentially giving large stakeholders too much dominance in a specific cryptocurrency. When large cryptocurrency investors, or “whales,” hold too large a stake in a currency and are granted too much freedom, a pump-and-dump effect occurs – in which the value suddenly collapses – which harms small individual investors.
Empowering investor lobbyists to push for deregulation within a supposedly independent federal agency only strengthens monopolistic efforts in cryptocurrency exchange markets. To avoid this, cryptocurrency as a policy area must remain nonpartisan and contained within the CFTC.
The CFTC plays a critical role in the expansion of cryptocurrencies and stablecoins, and its separation from the presidential administration’s sphere of influence is vital. The CFTC has regulatory authorities over cryptocurrency derivatives, including futures contracts, the computer chips necessary for its operation, and its institutional adoption. Everything from who, when, and how consumers trade cryptocurrencies is monitored and regulated by the CFTC, making it the most fundamental agency in its global growth. So while crypto is technically not subject to government oversight, the aspects that keep it active and growing, are regulated by the CFTC.
Unfortunately, the CFTC is a victim of politicization, as the agency has withdrawn regulations on futures commissioners to align with the Trump administration’s agenda.
If the CFTC continues to struggle for policy alignment with presidential policy agendas, things like smart contracts will also experience unstable and inconsistent regulation. This is an extremely slippery slope: if the CFTC (and therefore crypto products) becomes a regular part of political agendas, then destabilization and political fluctuations will reduce the productivity and standardization of crypto derivatives markets.
To help combat cryptocurrency polarization, we should avoid voting directly on upcoming cryptocurrency issues, educate ourselves on the costs and benefits of institutional cryptocurrency integration to make our own decisions on what we deem appropriate. Taking the party identity’s view of cryptocurrency with a grain of salt will help allow its best elements to flourish.
By protecting cryptocurrency from the gridlock and turmoil of partisan politics, the world and its investors will be able to reap the full potential of this revolutionary technology.
Stephanie Bouserhal is an opinion columnist who writes about cryptocurrency in her “Crypto Critiques” column. She can be reached at scbous@umich.edu.
