25/11/20

FINTECH: Momentum Behind Crypto Likely to Progress Under Biden, Say Experts.

As published on thefintechtimes.com, Tuesday 24 November, 2020.

A Joe Biden presidency is likely to accelerate momentum behind cryptocurrency, which has enjoyed a landmark year, bolstered by several favourable announcements as it becomes more mainstream, experts say.

While there is a debate as to how favourable a Biden presidency will be towards Bitcoin, Ethereum, Litecoin and other virtual currencies, Biden’s presidency comes amid a period in which regulators, policymakers and financial intuitions are increasingly viewing crypto as a mainstay.

Following the closing of US election polls, the value of Bitcoin surged by up to 30 per cent, climbing above $15,000 (£11,200).

The value of Bitcoin has been rocketing this year amid massive stimulus from governments and central banks during Covid-19, which some argue has made virtual currencies more attractive than the dollar.

Seamus Donoghue, VP, business development, METACO, a crypto platform, said the spike in Bitcoin indicates the market is looking beyond the election result and the increased adoption of bitcoin and crypto.

Donoghue said: “Regulators globally are aligning on to the fact that Bitcoin and crypto are here to stay and are defining clear frameworks around crypto.”

Yet as with any Democrat president, there is concern Biden – whose only public comment on Bitcoin was to clarify he didn’t hold any amid a Twitter hack- might be anti-business.

Kristin Smith, executive director, Blockchain Association, the trade body, said: “There is always a concern that Democrats in the US tend to be focused on regulation first and I think the crypto industry very much wants appropriate regulation.

“I think we could run the risk of having too much regulation.”

However, any push towards further regulation is likely to be offset by the likelihood of the Republicans holding on to their majority in the Senate.

Key financial appointments under Trump were a “mixed bag” for crypto, points out Smith.

She says Jay Clayton, chairman of the Securities and Exchange Commission, was not a “huge fan” of crypto but Brian Brooks, the acting Comptroller of the Currency, did “wonderful things” for the industry.

Llia Maksimenka, CEO, PlasmaPay, the payment platform, said: “A new administration may have significant implications for crypto: Trump previously declared that he’s not a friend of cryptocurrency.

“The Biden administration on the other hand will welcome a number of new faces who will enter into key regulatory agencies that may be more flexible to create a policy around crypto.”

One appointment crypto is particularly excited about is Gary Gensler, a Wall Street and Washington veteran and crypto expert who once called blockchain a “change catalyst”, who is leading the financial policy transition team for Biden.

Nicholas Pelecanos, head of trading, NEM, the blockchain development platform, said Gensler “could be quite positive for the space” citing him as being “pro-crypto”, who has testified before Congress about cryptocurrency and blockchain many times.

Furthermore, Pelecanos argues that Gensler could potentially help build impetus behind a US dollar digital bank central currency.

Some sort of payment gateway might be “popping up sooner rather than later,” he says, but will not be an overnight move.

Maksimenka adds: “A Biden administration may also accelerate the possibility of a digital dollar. We already have USDT, USDC and other US-based local stablecoin support.

“With a more flexible administration that is adding key players from the crypto and blockchain industry to it, I only see more adoption taking place.”

Likewise, the appointment of federal governor Lael Brainard, the central bank’s de facto spokesperson for blockchain, who had been considered a leading contender for the secretary to the treasury role, would have also excited the crypto industry.

But the latest reports suggest Brainard has slipped behind as a contender.

Crypto enthusiasts have long-argued for regulatory clarity on security laws and when they apply to crypto.

They believe that applying securities regulation to a new technology like cryptocurrency inhibits its growth.

The Securities and Exchange Commission (SEC) has ruled Bitcoin and Ether are not securities, but some initial coin offerings might be securities.

Denelle Dixon, CEO, Stellar Development Foundation, a non-profit that supports the development of blockchain network Stellar, said clarity is crucial.

She said: “There is a lot of innovative and creative projects out there that get more concerned about whether they are going to be lumped in as a security and therefore see themselves challenged on that.”

The industry is also hoping that under a Biden presidency they will see a reversal of several failed attempts to get a Bitcoin ETF approved by regulators.

The latest issuer to be rejected by the Securities and Exchange Commission for a bitcoin-based exchange traded fund was Wilshire Phoenix.

But, in September this year, there were reports that Brazilian fund manager Hashdex had signed an agreement with Nasdaq, which has approved the launch of a Bitcoin ETF.

Experts believe change could be afoot under a Biden administration.

Donoghue said: “The Bitcoin market has been pushing for an ETF in recent years and the SEC has failed to approve any listing application.

“If the new Biden appointed head is crypto-friendly that will greatly increase the odds that an EFT could be approved in 2021. An ETF is expected to be a vehicle to bring bitcoin to the mainstream masses.”

The industry is also hoping for favourable policies on stablecoins, a type of cryptocurrency often backed by traditional assets, which have surged in popularity as an efficient way to settle international transactions.

In September, the Office of the Comptroller of the Currency said it would permit US financial institutions to hold reserves to support digital dollar stablecoins.

The green light, effectively, provides legal cover for tech and finance firms experimenting with stablecoins.

A further boon for the industry is that rising inflation is expected to lead to more investment in the crypto space.

Amid plans for a second round of stimulus packages to be handed out for Covid-19 relief, the US Federal Reserve will have to mass print government-issued currency, leading to inflation.

Pelecanos said: “With stimulus comes more printing by the Fed and a consequence of more printing is more inflation.

“The inflation narrative has seen a lot of Wall Street capital flow into Bitcoin this year, with hedge fund legends like Paul Tudor Jones taking a large stake in the asset.”

Bitcoin has found support among Wall Street giants and several well-known investors this year as a potential hedge against inflation.

One example was Stanley Druckenmiller, who has built a $4.4bn (£3.3bn) fortune and has previously said he “didn’t want to own Bitcoin”, who revealed he did buy some bitcoin and thinks it could perform better than gold.

Another win for crypto in 2020 was when the Office of the Comptroller of the Currency ruled that national banks could provide cryptocurrency custodial services and fiat bank accounts to crypto businesses.

For an industry which has found it challenging to access traditional banking services, the approval marked a significant milestone.

There was more institutional support behind crypto when JP Morgan published a report saying that Bitcoin has a “potential long-term upside” as an alternative to gold.

Meanwhile, Bitcoin was given a fillip from payments giants PayPal when it announced that it would allow its more than 300 million users to buy and spend bitcoins and some other major cryptocurrencies.

These favourable announcements came during a year, which saw US policymakers coming around to the notion of a need to modernise money, while consumers have also expressed an increased interest in crypto.

“I think this year has been really phenomenal,” says Dixon. “I think some of this has to do with Covid and concern over the use of paper money and I think digital assets have been really interesting to folks.”

Despite uncertainty as to how Biden’s presidency will pan out, the industry is, for the most part, hopeful.

Dixon said she has no concerns as yet about a Biden presidency while Smith says “we still have some unknowns but I think there is a pathway for a Biden administration to end up being a positive development in the crypto policy world.”