Trump accelerates progress on cryptocurrency policy and solidifies decision against US central bank digital currency.

In the wake of Donald Trump’s inauguration, the crypto market is feeling the effects of his newly implemented policies. With a bold move of issuing a ‘memecoin’ alongside his spouse, Trump’s enthusiastic support for the crypto market was apparent from the start. Subsequently, an executive order titled ‘Strengthening American Leadership in Digital Financial Technology’ was issued, signaling the administration’s commitment to digital financial technology.

While the executive order lacks in-depth policy specifics, it does make several noteworthy promises. Firstly, it vows to facilitate access to public blockchain networks. Currently, institutions like banks struggle to engage with these networks due to their open nature, posing challenges for regulatory oversight. With the Securities and Exchange Commission (SEC) retracting the controversial Staff Accounting Bulletin 121, the door is now open for traditional financial institutions to offer crypto services to clients.

Moreover, the SEC has formed a dedicated crypto taskforce under the leadership of Commissioner Hester Peirce. However, the Commodities and Futures Trading Commission still lacks a regulatory body for cryptoassets, despite pending legislation that would place crypto markets under its purview. The anticipated convergence of cryptoassets with traditional finance is anticipated to propel crypto markets, a trend forecasted after Trump’s election victory in 2024.

Furthermore, Trump’s executive order aims to ‘protect and promote fair and open access to banking services’, indirectly addressing the issue of crypto debanking. Many in the industry have struggled to establish banking relationships with reputable US institutions due to risk management concerns. While the specifics of the administration’s plan remain unclear, it is likely to foster a closer relationship between crypto and traditional banking sectors.

Notably, the executive order firmly rejects the idea of a US central bank digital currency (CBDC), citing potential threats to financial system stability. While this notion diverges from global central banks’ views on CBDCs, it resonates with banks wary of potential disruptions posed by CBDCs.

Looking ahead, the executive order’s broad definition of CBDC encompasses various forms, including FedWire, the Federal Reserve System’s wholesale payments service. Although this may discourage wholesale CBDC initiatives, the Fed could explore digital representations of central bank money for financial market applications or cross-border payments improvements.

Amidst these developments, private sector efforts towards stablecoins to safeguard the dollar’s sovereignty could gain support under the new administration. Such a shift could set the US apart from international efforts to integrate central bank money onto unified ledgers, potentially diminishing the value of existing projects.

Trump’s pro-crypto stance, characterized by initiatives like the ‘strategic bitcoin reserve’, is met with mixed reactions within the industry. While some praise the favorable regulatory environment, others criticize opportunistic actions that could undermine the industry’s credibility.

Overall, Trump’s proactive approach to crypto policy has set a new trajectory for the industry, one that prioritizes collaboration between traditional financial systems and emerging digital technologies. As the administration navigates the complexities of regulating cryptoassets, the impact of these policies on market dynamics and innovation remains to be seen.