Flows: Crypto investment products saw $1.4 billion in net inflows last week: CoinShares

Institutions: State Street Said to Explore Creating Stablecoin, Deposit Token

Fintech: Tracking PayPal’s rise as a crypto company

Miners: U.S.-Listed Bitcoin Miners' Share of Global Hashrate Reached Record in July: JPMorgan

Regulation: Staking and in-kind redemptions for crypto ETFs can be reconsidered says SEC Commissioner

Earlier this week, MRP highlighted the coming launch of new spot-backed Ethereum (ETH) funds, likely to be listed for trading in the US next week. Although the “hype” gains that preceded the spot Bitcoin ETF launches throughout the back half of 2023 have not materialized to the same degree in the price of ETH, this was largely due to heavily subdued optimism surrounding the chances for approval until the deadline for a final SEC decision was less than a week away. A team of Bloomberg Intelligence analysts, for instance, had estimated the odds of approval at just 25% until May 20, just three days prior to the SEC approving eight new funds’ 19b-4 filings. MRP was not taken off-guard to the degree that many others were, as we maintained an SEC approval to list spot ETH funds in 2024 (particularly between May and August) remained likely due to previous SEC litigation, a potential conflict with fellow regulators at the CFTC, and the previous statements of high-ranking commission officials.

What many have characterized as a sudden shift in an otherwise aggressive regulatory regime at the SEC could be compounded by an all-out transformation of the commission and other US financial regulatory bodies after this November’s Presidential election. The newly nominated Republican candidate, former President Donald Trump, initiated a pro-crypto offensive as part of his campaign earlier this year. That was likely part of an effort to begin peeling away swing voters that remain undecided (or in support of a third party candidate), as well as moneyed crypto industry donors. Members of the latter cohort have seen their enterprises juiced by an ongoing bull run that sent Bitcoin (BTC) to record highs this year and that financial windfall is powering their newfound political might. Throughout the past several months, Trump has become the first major party candidate to accept Bitcoin and crypto donations, courted potential donors in closed-door meetings with Bitcoin mining executives and experts, and has accepted the keynote speaking slot at the world’s largest annual Bitcoin industry conference – set for next week in Nashville. He will hold a separate fundraising event alongside the conference where seats are going for as much as $844,600 and photos with the former President will be charged at $60,000 a piece.

This is largely standard practice in regard to political fundraising that involves megadonors, but it has rarely, if ever, been in pursuit of crypto cash before. Direct contributions to the Trump campaign in the form of crypto have only totaled $3 million in the second quarter, less than 1% of the titanic $331 million haul the campaign pulled in throughout that period, but that likely understates the true impact of crypto’s impact as the campaign only began accepting crypto donations halfway through the quarter in mid-May, and many donors who make their money in digital currency are likely still contributing in the form of dollars.

If polling averages are to be believed, Trump’s fortunes in the coming general election are favorable, more specifically, he appears to be leading in the “swing states” – key battlegrounds that will unlock the path to the 270 electoral college votes needed to be elected President. As an example, RealClear Polling shows the average poll in Pennsylvania (the swing state with the most electoral votes at 19) favoring Trump over incumbent President Biden by +4.5 points. Biden won the state over Trump by a margin of just 1.2% four years ago and was polling at +7.0 points on this day in 2020. A strong performance by Trump in the general election could have a positive impact on the performance of fellow Republicans on down-ballot races that decide the balance of power in Congress. Though pro-crypto sentiments among US legislators skew to the right side of the aisle, MRP noted earlier this year that Congress is already filled with pro-Bitcoin voices in both major parties, with high profile legislators and former Presidential candidates like Senators Kirsten Gillibrand (D-NY) and Ted Cruz (R-TX) receiving “A” ratings from the Stand With Crypto Alliance – a Coinbase-affiliated nonprofit that now boasts 440,000 members and an associated Political Action Committee (PAC).

Per Reuters, crypto super PACs Fairshake, Defend American Jobs, and Protect Progress have so far raised more than $110 million this election cycle, according to Federal Election Commission records. This week at the Republican National Convention (RNC), representatives from crypto exchange Coinbase and XRP issuer Ripple, as well as the venture capital firm Andreessen Horowitz, were on the ground courting politicians and voters. These three companies are the leading backers behind Fairshake and the latter firm is making separate donations to other PACs supporting Trump. The RNC also served as the venue for Trump to debut his choice for Vice President, Senator JD Vance (R-OH) who has previously disclosed personal holdings of Bitcoin valued between $100,000 and $250,000 and openly condemned the SEC’s litigious “regulation by enforcement” regime that has widely targeted digital asset protocols and enterprises with mixed success. Vance has gone so far as to label current SEC Chair Gary Gensler as the “worst person” in terms of substantive disagreements with the new VP candidate on regulation, further describing Gensler as the “complete opposite” of himself.

The President has lone authority in nominating a Chairman for the SEC, but it is up in the air whether Trump would maintain power to potentially fire Gensler if he were to win a second term. Trump has stated that he feels "Gensler is very much against" crypto, while he is "good with it". Andrew Vollmer, senior affiliated scholar at George Mason University, has argued that while the Constitution does not expressly give the President the power to fire an SEC chair, it also does not expressly restrict it either. A 2010 Supreme Court decision ruled that Commissioners could not be removed by the President except for certain circumstances, qualifying as a “standard of inefficiency, neglect of duty, or malfeasance.” It is more likely that, Gensler, who was appointed by Biden and confirmed by the Senate in April 2021 could resign if the President were to be beaten in November (particularly if Trump were to request his resignation) or serve out the rest of his five-year term through June 2026. Trump’s previous SEC Chair, Jay Clayton, has a mixed record in regard to crypto, launching an ill-fated lawsuit against Ripple Labs that saw the SEC’s case largely dismantled in federal court, and the former President himself has only become a crypto believer relatively recently, arguing in 2021 that Bitcoin was a “scam against the dollar”. That raises questions about just how far Trump will go in enacting a more hands-off approach to digital assets. We will continue to cover this topic, as well as President Biden’s more cautious embrace of crypto in coming reports.

Though 2024 marks the first time Bitcoin has been such a high-profile issue in the world’s most consequential political contest, it is not a surprise to us that this has occurred. Counter to the more prevalent doom and gloom narrative, suggesting that Bitcoin would be regulated harshly in the US or even pushed into irrelevancy by agency and legislative crackdowns, MRP has posited for years that BTC would be more likely to carry great leverage in democratic states. Political power in the US is derived from the voters in an election and, in the succinct words of Microstrategy CEO Michael Saylor, “You’re not going to win any votes by opposing Bitcoin“.

Crypto voters may not have been a major constituency in past Presidential elections, but the country has changed tremendously since the last race for the White House in 2020. Data from multiple different sources including NYDIG and Unchained, collected throughout various periods of 2021-2023, has shown that roughly 20% - 25% of American adults/investors owned Bitcoin within that time frame. In a February 2022 Intelligence Briefing, we wrote: “it only makes sense that democratically elected politicians will continually become more crypto-friendly when nearly one of every four potential voters is personally invested in Bitcoin,” and this dynamic may now be playing out before the American public.

July 17, 2024: Spot Ethereum Funds Set to Trade Next Week as Similar Bitcoin-Backed Products See Sudden Inflow Spike →

June 10, 2024: Bitcoin Miners Moving Into Traditional Data Centers’ Cloud Market, Could Soon Become Targets for M&A →

May 28, 2024: Grayscale’s Bitcoin Drain Could be Test Case for Coming Distribution of 142,000 BTC in Bankruptcy Payout →

May 21, 2024: ETH Surges on Emerging Potential for Spot ETF Approvals, Final Decision Date on Deck This Week →

April 23, 2024: Bitcoin Hash Rate Holds Strong in Wake of Halving, Suggesting Miner Margins May Remain Intact →

March 25, 2024: SEC Reportedly Probes Ethereum Foundation but Would Struggle to Backtrack on ETH’s Commodity Status →

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McAlinden Research Partners (MRP) publishes daily and other periodic reports on the economy and the markets.

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