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Emerge Blog

Potential Impacts of U.S. Election Results on Digital Asset Markets

The upcoming U.S. elections are poised to play a critical role in shaping the digital asset sector. The administration that assumes office and the Congressional makeup may introduce crypto-focused legislation and could adjust tax and fiscal policies, influencing financial markets more broadly.


Polling and prediction markets, such as Polymarket, indicate a close race, though as of mid-October, Republican control of the Senate is expected. Grayscale Research suggests that a shift in Senate control could significantly impact the crypto sector since the Senate approves presidential appointments to key regulatory positions, like the SEC and CFTC chairs.


On a broader scale, support for cryptocurrency remains bipartisan among voters, with a slight lead in Bitcoin ownership among Democrats. Candidates across the political spectrum have also voiced support for crypto innovations. Regardless of which party holds power, Grayscale Research views bipartisan legislation as potentially the best way forward for the digital asset industry in the U.S.


bitcoin vs us


Despite the multitude of issues at play in the 2024 elections, digital assets have managed to capture some attention from candidates. This is likely due to the shifting preferences among voters. Surveys by Grayscale in collaboration with The Harris Poll show that about half of likely voters prefer candidates interested in staying informed on cryptocurrency. Additionally, with the U.S. lagging behind other countries in crypto regulation despite the sector's rapid growth, the need for comprehensive legislative action is more pressing.


Below, we examine potential election outcomes for the White House and Congress and their anticipated impacts on the digital asset markets. Each scenario includes implied odds from Polymarket, which has seen notable adoption this year as a blockchain-based prediction market.


Election Scenarios and Crypto Impact


White House


Polymarket Odds: Trump 57% / Harris 43% (as of October 15, 2024)

**Summary**: A Trump win may lead to a more favorable regulatory environment and larger budget deficits, both potentially benefiting Bitcoin and the crypto sector. However, Trump’s fiscal policies would need Congressional support, and increased tariffs could bring market volatility.


The president will define crypto policy priorities, nominate key regulatory officials, and shape broader economic decisions on taxation, spending, and tariffs. Former President Trump has been a vocal advocate for digital assets, aspiring to position the U.S. as a "global hub for crypto and Bitcoin." He also recently announced plans to launch a crypto lending platform, World Liberty Financial, though details are limited.


Vice President Harris, on the other hand, has recently expressed supportive sentiments about digital assets, noting her administration’s commitment to fostering innovation in areas like AI and digital assets while safeguarding consumer interests. Reports indicate that her campaign may soon unveil proposals to protect crypto assets and establish regulatory frameworks for digital currencies.


The Biden/Harris administration has generally adopted a more stringent stance on the crypto industry, evidenced by several legal actions, restrictions on access to traditional banking services, and vetoes on bipartisan legislation. Consequently, Grayscale Research expects a Trump-led administration to nominate regulators who may encourage crypto industry innovation.


The trajectory for Bitcoin specifically will likely depend on the macroeconomic policies of the next administration. Independent analysts forecast that both Trump and Harris’s fiscal proposals would expand the federal deficit, which is already considerable. The Congressional Budget Office (CBO) projects that the deficit will average 6.2% of GDP over the next decade. If implemented, Harris's plan to expand the Child Tax Credit, despite a proposed increase in the corporate tax rate, would raise the deficit to an average of 6.5% over ten years. Conversely, Trump’s proposed extension of the 2017 tax cuts and additional tax reductions would elevate it to 7.8%.


Grayscale suggests that larger budget deficits tend to devalue the U.S. Dollar, which could positively affect Bitcoin’s value in the medium term. However, fiscal policy adjustments require Congressional approval, and the feasibility of campaign proposals becoming law remains uncertain, especially with divided government. Additionally, Trump’s planned tariff hikes could strengthen the Dollar, potentially creating downward pressure on riskier assets like crypto if other countries retaliate. Although tariffs don’t directly impact Bitcoin, crypto asset valuations are often correlated with broader market trends, so higher tariffs could introduce price risks.


Senate


Polymarket Odds: Republican Control 78% / Democrat Control 22%

Summary: While both parties have supported various aspects of crypto policy, a Republican Senate may favor the industry more, given its authority in confirming regulatory appointments.


the bull after the US election

The Senate and House of Representatives share responsibility for approving fiscal policies and any crypto-focused legislation. The Senate also confirms presidential nominees for positions within regulatory bodies such as the SEC, CFTC, and Federal Reserve Board. Given the regulatory ambiguity surrounding many digital assets, Senate influence over these appointments may be crucial for the crypto industry.


Legislation on digital assets introduced in the current Congress has been bipartisan, including the Digital Commodities Act from the Senate Agriculture Committee and stablecoin legislation from the Senate Banking Committee. However, Republican senators have generally shown more consistent support for the digital asset industry. For example, the crypto advocacy group Stand With Crypto gave an “A” rating on crypto issues to 39 of the 49 Republican senators, compared to just 6 out of 51 Democrats. Additionally, Republican senators predominantly voted in favor of repealing SEC Staff Accounting Bulletin (SAB) 121, which affected the treatment of crypto assets, while a minority of Democrats supported the repeal.


Currently, Democrats control the Senate, giving them sway over committee leadership, legislative priorities, and some presidential appointments. Given that Republicans are generally more supportive of crypto innovation, Grayscale Research believes a Republican-led Senate could prove advantageous for crypto markets, particularly due to the oversight it provides for regulatory appointments.


House of Representatives


Polymarket Odds: Republican Control 44% / Democrat Control 56%

**Summary**: Control of the House is pivotal for deciding between unified or divided government, influencing the president’s ability to realize fiscal policy goals and thus shaping broader financial markets.


The House must also approve any fiscal or crypto-specific legislation. While recent legislation has been bipartisan, it has generally enjoyed stronger Republican support. For example, the FIT21 bill received votes from all 208 Republicans and 71 Democrats, including former Speaker Pelosi and Democratic Whip Clark.


House control will determine committee assignments and legislative priorities, impacting crypto policy. More significantly, it will decide whether there is unified or divided government. Under divided government, fiscal policy changes are harder to achieve.


Potential Election Scenarios


With three key institutions (White House, Senate, and House) and two possible outcomes for each (Republican or Democrat control), there are eight potential scenarios, each with unique implications for the digital asset industry. Polymarket’s implied odds for each scenario highlight that no single outcome is clearly dominant, underscoring the high uncertainty in the post-election power balance. Additionally, the odds of a complete Republican or Democratic sweep remain close to 50%. The only scenario with relatively high odds is Republican control of the Senate, which could favor crypto markets due to the Senate’s influence in confirming presidential appointments.


Crypto as a Bipartisan Issue


Crypto's relevance in politics reflects its bipartisan appeal among American voters. National surveys show that nearly half of likely voters favor candidates open to learning about cryptocurrency. Support for digital assets also cuts across party lines among voters and candidates alike, underscoring that crypto is emerging as a shared interest within American politics.


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