Biden: A Blessing for Bitcoin? We Think So.

KEY TAKEAWAYS 

  • Biden’s fiscal policy could be bullish for BTC if the Democratic Party clinches a majority in the Senate
  • Biden has tapped Gary Gensler, a pro-crypto financial regulator, to lead the financial reform transition team, and nominated Janet Yellen, a strong advocate for additional fiscal spending amid the pandemic, as Treasury Secretary 
  • SEC’s regulatory framework on cryptocurrency could be eased by an imminent leadership change as Jay Clayton, the current chairperson, is expected to step down by January 2021

The contested U.S. presidential election, amid a lamentable administrative inadequacy in containing the resurgence of COVID-19 cases, is finally about to draw its curtains. As the clock ticks down, the hope for President Trump to successfully challenge the election result through legal proceedings is reduced to near impossible. Legal strategies underpinning Trump’s appeal are grounded in sheer volume, as reflected in the flurry of lawsuits filed in battleground states. Evidence still points to a widening lead for Biden. 

Three weeks into Biden’s claimed victory, Trump’s last-ditch effort to stay in power continues to face resistance. Still, the incumbent has shown no intention to deliver a concession speech, despite offering to facilitate a smooth transition of power before January 2021.

If Trump’s defeat made you think that victory lies naturally in the hands of the competing party, think again. The Democratic Party is also reckoning with a defeat of its own, bitterly holding on to their House majority with around six fewer seats and expanding their ranks in the Senate, bickering and bruised. 

Still, great expectations lie ahead for the Biden administration, some of which come from the crypto community. 

Macro Indicators 

Bitcoin’s current bull momentum continues for the seventh week in a row, riding the waves of Biden’s triumph with little respite. The momentum is partially driven by the market’s expectation for a larger relief package to revitalize a COVID-induced economic slumber.

Democrats have proposed a $3.4 trillion stimulus package which has been repeatedly rejected by the Republicans, led by Senate Majority Leader Mitch McConnell who drew a $500 billion line in the sand. Proponents of the relief package say this current impasse is blatantly turning a blind eye to the nation’s dire needs, especially the “working poor” and unemployed. 

The ongoing battle for the majority in the Senate is currently stalled at 48:50 — 46 Democrats and two independents Angus King (I-ME) and Bernie Sanders (I-VT), against 50 Republicans — awaiting two Georgia run-offs, with the scale tilting in favor of the Republicans. The failure to establish a Democratic majority within the Senate may cast a shadow over the likelihood of major reform bills being passed, at least in the next two years. 

As the stand-off drags on indefinitely, uncertainties are brewing over the distribution of pandemic relief packages. These include special unemployment benefits, zero-interest loans for small businesses, and federal aid to states and governments — which are facing a staggering deficit of $240 billion in the current fiscal year. Bitcoin, the emerging hedge against macroeconomic uncertainties, is increasingly hailed to become the go-to asset management strategy for institutional and retail investors alike. The rollout of relief packages, regardless of size, will provide the next directional drive for Bitcoin. 

The president-elect demonstrated his resolve to aggressively revive the world’s largest economy by nominating the former Federal Reserve chair, Janet Yellen, at the helm of his economic reform policy. A choice applauded both on Wall Street and in Washington, Yellen is expected to champion extraordinary fiscal support by expanding the stimulus package, and maneuver within the constraints of lower-for-longer interest rates. Her appointment could also signal the beginning of the next chapter of unity between the Fed and Treasury — two institutions at the front line of this battle against an unprecedented economic crisis.  

Regulation

The President-elect shows great promise in strengthening the regulations of the financial sector. Although Biden’s presidential transition has barely started, he has already convened a financial reform transition team led by Gary Gensler, former chairman of the Commodity Futures Trading Commission (CFTC). Aside from his stellar street cred in overseeing derivatives market reforms in the aftermath of the 2008 global financial crisis, Gensler is known to be a crypto-friendly, progressive financial regulator and scourge of Wall Street. 

In 2019, Gary Gensler commented on the status of Bitcoin mass adoption in an op-ed piece, praising “Satoshi’s invention” of having the potential to “spur changes”. His “Hype Cycle” framework, which examines the stages of adoption and market enthusiasm of emerging technologies, has gained traction beyond the academic fields into popular media. In the article, Gensler recognized blockchain’s role in “promoting economic inclusions” and challenging the “incumbents and traditional technologies”. He argued that cryptocurrencies and blockchain technologies have exposed flaws in the existing payments system and, in turn, catalyzed real and exciting changes. 

Gensler’s pro-bitcoin and pro-regulation stance signals greater regulatory clarity for the crypto space. Well-versed with the nascent technology, Gensler will likely put together the right team of regulators to hammer out a set of sophisticated and nuanced regulatory policies. Even if the changes are not immediate, having one more friendly face in a position of power would hold great promise for crypto’s mainstream adoption. 

Another immediate consequence of Biden’s election win is the stepping down of Jay Clayton, the current SEC chairman, months ahead of his scheduled departure. During his term, Clayton, known for his cautious stance on bitcoin exchange traded funds (ETFs), shelved several bitcoin ETFs applications, expressing concerns such as price manipulation, lack of regulation and proper crypto custody providers. Speculation surrounding Clayton’s successor points to Hester Peirce, dubbed “Crypto Mom”, who could also offer the crypto market more clarity around regulatory issues.

The Case for Crypto 

Recent examples of mainstream adoption strengthen Bitcoin’s narrative, reinforcing its status as a strong hedge against the depreciating dollar. In recent months, the crypto space has witnessed an unprecedented inflow from institutional investors and tech firms massively acquiring bitcoins as part of their asset management strategies. Grayscale, a renowned investment firm, currently holds around 500,000 BTC — and counting — as the firm accelerates their rate of crypto acquisition. Tech mogul Michael Saylor, founder and CEO of MicroStrategy, purchased 60,000 BTC, on top of his company’s $425 million investment into bitcoin. Square, the trading and payment platform, has facilitated transactions of over 150,000 BTC in 20Q3 alone, while absorbing 40% of new BTC supply. These are testaments to the growing significance of Bitcoin and its evolving role in a myriad of use cases. 

Source: Bybit Insights

Leveraging the positive sentiment of cryptocurrencies bolstered by institutional investors, Biden’s stance on tech and innovation may change the hands-off policy of the Trump administration. This could further nudge the benchmark toward the mainstream, potentially converting more real traders to onboard. 

A Biden presidency could very well accelerate adoption and policy in the coming years. How it will all unfold however, remains to be discovered.