Source: Grayscale; Compiled by: Wuzhu, Golden Finance
summary
The outcome of the U.S. election could have a significant impact on the digital asset industry. The next president and Congress could enact legislation specific to cryptocurrencies and could make changes to tax and spending policies that affect broader financial markets.
Current polling data and implied odds from prediction markets such as Polymarket suggest this is a tight race. [1] However, as of October 15, these data suggest that Republican control of the Senate appears likely. Grayscale Research believes that a change in Senate control could be particularly relevant to cryptocurrency given the Senate’s role in confirming presidential appointees to key regulatory agencies such as the SEC and CFTC chairmen.
However, at the voter level, the data shows that cryptocurrency is a bipartisan issue of concern, with Bitcoin ownership rates slightly higher among Democrats than Republicans. In addition, specific candidates from both parties have expressed support for cryptocurrency innovation.
Regardless of which party controls, Grayscale Research believes that comprehensive bipartisan legislation may be the best long-term solution for the U.S. digital asset industry.
Despite the many problems in the 2024 US election, the digital asset industry has attracted some of the candidates' time and attention. This can be attributed in part to the changing preferences of voters: in a national survey conducted by Harris Poll on behalf of Grayscale, we found that about half of potential US voters are more likely to vote for a candidate who is interested in cryptocurrency than for a candidate who is not interested in cryptocurrency. The growing attention to cryptocurrency also reflects the fact that US rulemaking lags behind other countries, even as the industry continues to grow and innovate, making comprehensive legislation more urgent.
Below we consider potential election scenarios for the White House and Congress and their likely impact on crypto markets. For each outcome, we report the implied odds from Polymarket, a blockchain-based prediction market that has seen a sharp increase in adoption this year.
Most outcomes are highly uncertain: polling data and prediction markets both indicate a highly divided race. However, the data suggests that a shift in control of the Senate (from Democrats to Republicans) seems likely, which could be a particularly relevant change given the Senate’s role in confirming presidential appointments, with direct implications for the cryptocurrency industry.
White House
Polymarket odds: Trump 57% / Harris 43% (as of October 15, 2024)
The upshot: A Trump victory could mean more supportive regulators and a bigger budget deficit, both of which could provide a boost for Bitcoin and cryptocurrencies. But Trump’s fiscal policy plans require congressional approval, and tariffs could create market uncertainty.
The next president will set the cryptocurrency policy agenda, nominate key regulators, and drive broader economic policy decisions regarding taxes, spending, and tariffs. Former President Trump enthusiastically embraced the digital asset industry, expressing his desire to make the United States the "cryptocurrency and bitcoin capital of the world."[2] He also announced the launch of a cryptocurrency lending platform called World Liberty Financial, though details about the project remain limited.[3]
Vice President Harris recently made more supportive comments about digital assets, explaining that her administration will “encourage innovative technologies like artificial intelligence and digital assets while protecting our consumers and investors.”[4] According to media reports, her campaign will also announce plans to “protect” crypto assets and develop “a plan to develop rules for cryptocurrencies and other digital assets.”[5]
However, the Harris campaign provided fewer specific details, notably given that, as viewed by some market participants and commentators in the cryptocurrency industry, the current Biden/Harris administration has taken an adversarial approach to industry regulation, including through a series of lawsuits, restricting access to traditional banking services, and vetoing bipartisan legislation.[6] As a result, Grayscale Research believes that the Trump administration is more likely to nominate regulators who are interested in supporting innovation in the crypto industry.[7]
Specifically, Bitcoin’s prospects may also depend on the next administration’s macroeconomic policy choices. Analysis by independent researchers suggests that both Trump and Harris’ fiscal policy proposals would lead to larger budget deficits—even though the federal deficit is already quite large. [8] Before being incorporated into the campaign’s stated plans, the Congressional Budget Office (CBO) projected that the federal deficit would average 6.2% of GDP over the next 10 years. According to the Penn Wharton Budget Model (PWBM), Vice President Harris’s proposal to expand the child tax credit and other reforms would result in a 10-year average budget deficit of 6.5% of GDP, even though she intends to raise the corporate tax rate to 28%. [9] Meanwhile, the PWBM analysis suggests that former President Trump’s plan to extend the 2017 tax cuts and reduce other tax rates would result in a 10-year average budget deficit of 7.8% of GDP (Exhibit 1). [10]
Grayscale Research believes that, all else being equal, large budget deficits should be viewed as negative for the dollar and positive for Bitcoin in the medium term.
Chart 1: Neither candidate has a plan to reduce the federal deficit
In practice, however, the market impact is uncertain. First, changes in fiscal policy must be approved by Congress, and it is unclear which campaign proposals could actually become law—especially in the context of a divided government. Second, former President Trump also intended to significantly increase tariffs. Higher tariffs tend to increase the value of the dollar and could put pressure on risk assets, especially if other countries retaliate. [11] While tariffs would not directly affect Bitcoin, crypto asset valuations are correlated with broader markets, so higher tariffs could pose downside risks to prices.
Senate
Polymarket odds: Republicans control 78% / Democrats control 22%
The upshot: While members of both parties have shown support for certain aspects of cryptocurrency policy, Republican control could be considered a net positive for crypto, given the Senate’s key role in confirming appointments to regulators.
The Senate, along with the House of Representatives, is responsible for passing any changes to fiscal policy[12] as well as any cryptocurrency-specific legislation. The Senate is also responsible for confirming presidential appointments, including those to key regulatory agencies at the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Federal Reserve. Given the uncertain regulatory status of many crypto assets, Senate oversight of agency appointments could be critical to the industry.
Crypto legislation passed by this Congress has been bipartisan, including the Senate Agriculture Committee’s Digital Commodities Act and the Senate Banking Committee’s stablecoin legislation. [13] At the same time, Republican senators have also become more vocal in their support for the digital asset industry. For example, crypto industry lobbying group Stand With Crypto[14] gave 39 of 49 Republican senators an “A” grade on crypto, but only 6 of 51 Democratic senators. [15] Furthermore, voting patterns indicate more Republican support: when the Senate voted to repeal SEC Staff Accounting Bulletin (SAB) 121[16], 48 Republicans voted in favor and 12 Democrats voted in favor.
Democrats currently control the Senate and therefore chair key committees, set legislative priorities, and ultimately have the deciding vote on some presidential appointments. Given that Republicans are generally more supportive of digital asset innovation, Grayscale Research believes that a change in Senate control could be a positive outcome for the crypto market — arguably the most important election outcome for the industry given the critical role of regulators.
House of Representatives
Polymarket odds: Republicans control 44% / Democrats control 56%
The upshot: Control of the House of Representatives will be crucial in determining whether the government is unified or divided, which will in part determine whether the next president can achieve his or her stated fiscal policy goals and, therefore, the election's impact on broader financial markets.
As with the Senate, passing any fiscal policy changes or cryptocurrency-specific legislation requires support from the House of Representatives. Legislation considered in this Congress is bipartisan, but has received more Republican support. For example, for the House Financial Services Committee’s FIT21[17] bill, 208 Republicans voted in favor, as did 71 Democrats, including former Speaker Pelosi and Democratic Whip Clark.
Control of the House will determine the House’s committee assignments and legislative priorities, which could have implications for cryptocurrency policy. But perhaps the most important impact will be whether one party controls both the White House and both chambers of Congress — a “unified government” — or whether control is split among the parties — a “divided government.” Changes in fiscal policy could be particularly difficult to achieve under a divided government.
Eight possibilities
For the upcoming US election, there are three institutions at play (the White House, the Senate, and the House of Representatives), each with two possible outcomes (controlled by Republicans or Democrats). Therefore, there are eight different possible scenarios, each with different implications for the digital asset industry. Exhibit 2 provides Polymarket’s implied odds for each scenario.
Chart 2: According to market forecasts, elections are highly uncertain
Grayscale Research will highlight several key points. First, of the four more likely scenarios, none clearly dominates — in other words, the balance of power after the election remains highly uncertain. Second, observers are divided over whether we will have a unified or divided government: the overall odds of a Democratic or Republican sweep remain close to 50%. Third, according to Polymarket, the only specific outcome with reasonably high odds is Republican control of the Senate. As long as this continues, we believe the election results will move in a direction that is favorable to the cryptocurrency market, given the key role the Senate plays in confirming presidential appointments.
Cryptocurrency is a bipartisan issue
Cryptocurrency is a bipartisan issue among voters. Results from a national survey conducted by Harris Poll on behalf of Grayscale show that Bitcoin ownership and familiarity with cryptocurrency are higher among self-identified Democrats than Republicans, and that Democrats have become more interested in cryptocurrency in general this year. [18] Furthermore, any new crypto legislation would require a supermajority in the Senate and would therefore almost certainly require bipartisan support.
That being said, Grayscale Research believes Republican control of the Senate is a meaningful positive for the digital asset industry, given the Senate’s key role in confirming the president’s appointees to regulatory agencies. As such, current polls and prediction market implied odds currently indicate a favorable outcome for the cryptocurrency market.
However, the prospects for any cryptocurrency-specific legislation and/or possible fiscal policy changes under the next administration are more uncertain. Grayscale Research believes that the best outcome for the health of the digital asset industry is a continued bipartisan push for comprehensive legislation.
Harris Poll Methodology
The survey was conducted online by Harris Poll on behalf of Grayscale through its Harris On Demand integrated product from September 4-6, 2024, within the United States among 1,841 adults (ages 18 and older) who plan to vote in the 2024 presidential election. Where necessary, data were weighted to match their actual representation in the population based on age, gender, race/ethnicity, region, education, marital status, household size, household income, employment, and online presence. Respondents for this survey were selected from those who agreed to participate in our surveys. Sampling precision for Harris Poll Online is measured using a Bayesian credible interval. For this study, using a 95% confidence level, the sample data is accurate to within +/- 2.8 percentage points. This credible interval is wider in subsets of the survey population of interest. All sample surveys and opinion polls, whether or not they use probability sampling, are subject to multiple other sources of error that are generally difficult to quantify or estimate, including but not limited to coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weights and adjustments.
Notes
[1] Grayscale takes no position on the accuracy or reliability of polling data or the implied odds of prediction markets such as Polymarket. In this post, Grayscale uses Polymarket’s data to indicate the general directionality of potential election outcomes.
[2] Source: Barron’s.
[3] Source: The New York Times.
[4] Source: Bloomberg.
[5] Source: National Public Radio.
[6] See, for example, (Wall Street Journal), (Unchained Crypto), (Reuters), (TechCrunch), (Axios), (Reuters).
[7] On regulation, former President Trump once said, “The rules are going to be made by the people who love your industry, not the people who hate your industry.” Source: CNBC.
[8] This statement from the Congressional Budget Office summarizes the current budget situation: “Over the 10-year forecast period, the CBO primary deficit averages 2.5 percent of GDP. In the 62 years between 1947 and 2008, the primary deficit exceeded 2.5 percent of GDP only twice. Over the past 15 years, however, it has exceeded that ratio more than 10 times, due in part to legislation enacted in response to the 2007–2009 financial crisis and the pandemic that began in early 2020.” Source: Congressional Budget Office.
[9] PWBM estimates are based on primary (pre-interest) deficits; Grayscale incorporates Congressional Budget Office estimates of interest spending before the campaigns present their proposals to calculate the impact of the total deficit. Estimates of the budgetary impacts of campaign proposals vary by source, and the numbers presented here should be considered illustrative. For other estimates, see the Committee for a Responsible Federal Budget and others.
[10] PWBM’s estimate of Trump’s proposal does not include the potential impact of tariffs on customs revenues. However, projections that do include tariff revenues, such as those from the Committee for a Responsible Federal Budget, find a roughly comparable net impact on the deficit. Estimates of the revenue impact over a ten-year period if Trump’s tariff plan remains unchanged range from about $2 trillion to $5 trillion. Sources: Committee for a Responsible Federal Budget, Tax Policy Center, Tax Foundation.
[11] Various studies have explored the impact of increased tariffs on the dollar. For example, see the multifaceted impact of U.S. trade policy on financial markets and the extent to which tariffs are offset by the exchange rate. For the impact on risk assets, see the impact of the U.S.-China trade war on U.S. investment, etc.
[12] Changes in tariffs generally do not require congressional approval.
[13] Specific bills include the Digital Goods Consumer Protection Act of 2022 (S.4760) and the Lummis-Gillibrand Payment Stablecoin Act (S.4155).
[14] The Stand With Crypto Alliance is a 501(c)(4) nonprofit organization funded by donations. Grayscale takes no position on the accuracy or reliability of data from The Stand With Crypto Alliance. In this post, Grayscale uses data from the Stand With Crypto Alliance to indicate the general directionality of Congressional positions on cryptocurrency policy.
[15] Counts independent senators who caucus with the Democratic Party.
[16] SAB 121 is financial guidance that requires firms to report customer cryptocurrency holdings as assets and liabilities, impacting how they manage cryptocurrency custody services.
[17] 21st Century Financial Innovation and Technology Act (H.R.4763).
[18] Across all three waves of polling, 18% of Democrats said they owned Bitcoin, compared to 15% of Republicans. Similarly, 51% of Democrats said they were “very familiar” or “somewhat familiar” with cryptocurrencies, compared to 45% of Republicans. Finally, in the third wave of polling (September 4-6, 2024), 37% of Democrats said they had become more open to learning more about cryptocurrency investments this year, compared to 30% of Republicans. Source: Harris Poll.
