Trump's Victory Signals Regulatory Relief For Crypto Sector, Starting With Gensler's Exit?

The cryptocurrency industry has poured millions of dollars into the U.S. presidential and congressional campaigns, but the biggest gain the industry may have reaped from this election is the departure of Securities and Exchange Commission (SEC) Chairman Gary Gensler.

This former Goldman Sachs banker led the most severe regulatory crackdown on the digital asset industry, initiating dozens of lawsuits against cryptocurrency companies and traders of all sizes, including financial giants Coinbase Global Inc. and proprietary trading firm DRW Holdings LLC.

Donald Trump's decisive victory almost guarantees that cryptocurrency-related enforcement will be relaxed once he takes office. In July, Trump promised at a Bitcoin-related conference in Nashville that he would fire Gensler on the first day of his second term.

The SEC often touts its success in court in winning judgments that align with its views, namely that decades-old securities regulations also apply to the emerging category of digital assets. The SEC has also imposed hefty fines on some industry giants. In April, the SEC successfully penalized stablecoin issuer Terraform Labs and its founder Do Kwon with a massive fine of $4.5 billion and an order for repayment. The agency has not yet released its annual enforcement report for fiscal year 2024, but according to a report by consulting firm Cornerstone Research, the previous year saw a total of 46 such cases initiated, more than 50% higher than the year before.

The next SEC Chairman is expected to introduce new regulatory provisions to amend existing securities laws or to make it easier for digital asset companies to comply with the regulations that Gensler has long criticized them for violating. This will also help to control enforcement.

With the Republican Party firmly in control of the Senate, the prospects for bipartisan cryptocurrency legislation supporting these goals become brighter.

"We expect that both the Trump administration's and new Congress' approach to crypto regulation to be much more constructive," said Jack Inglis, Chief Executive of the Alternative Investment Management Association, based in London and representing hedge funds and private equity firms.

This means recognizing the need to incorporate cryptocurrencies into a broader financial services framework while considering policies that take into account the technological differences with traditional finance, which will lead to more tailored approaches in many areas.