"Bitcoin, not crypto" likely to become law under Trump

For years, the overarching cryptocurrency community has been riddled with how to comply with laws and regulations. With Trump as the president-elect, having expressed support for the industry at the Bitcoin2024 event in Nashville in late July, new legislation is being written and prepared to finally draw a clear line in the sand.

As bitcoin rallied more than 30% since election night, the industry has understandably regained attention from well-known investors who seem to only pay attention periodically, some of which are the hosts of the All-In podcast. In their latest episode (EP. 204), they discuss new crypto legislation proposed by Senate Republicans.

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FIT21 – Financial Innovation and Technology of the 21st Century Act

"I think the crypto industry basically wants a clear line for knowing when they are a commodity and they want this commodity to be governed like all other commodities by the CFTC. That's what this bill would do. Now with the Republicans winning the Senate, the prospects for that bill to get enacted are now greatly improved, especially because Sherrod Brown, who used to run the Banking Committee, just lost to Bernie Moreno, which was a seat in Ohio. Senator Elizabeth Warren will still object to this legislation but she's just going to have way less influence, since it seems like Gary Gensler isn't going to be sticking around very long at the SEC" says David Sachs, before he goes on.

"Look, the bottom line here is that, we are close to having clear rules of the road codified by Congress, which is what the crypto industry has been asking for, and the days of Gensler terrorizing crypto companies by issuing wells notices without clarifying what the rules are that he is prosecuting, those days are about to be over, so I think this is why the crypto markets are rallying".

Under this legislation, crypto assets would be classified as commodities regulated by the Commodity Futures Trading Commission (CFTC) if the blockchain they run on is "functional and decentralized", which is the key requirement. If their blockchain is functional but not decentralized, then they would be considered securities and fall under the purview of the Securities Exchange Commission (SEC).

Sellers Remorse

In the same episode, Chamath Palihapitiya shares that he thinks more about the bitcoin he sold for $1.8M in 2014 to purchase land in Lake Tahoe, which would now be worth more than $100M, rather than thinking about the gains from the bitcoins he kept.

Additionally, he mentions how much more money he would have made for his fund investors during the time he was a private investment manager, labeling the reallocation of funds motivated by capitulation a "$3 to 4 billion dollar mistake, and growing". At the beginning of the year, Chamath predicted bitcoin would be the best performing risk asset of 2024.

There are additional interesting data points highlighted in this episode:

• Publically traded centralized exchanges and brokers like Affirm, PayPal, Robinhood, and Coinbase rally from a low 30% up to more than 80%
• Not only is the crypto market reacting optimistically to the beneficial nature of the expected deregulation proposed by Trump, but also the finance and fintech industry
• How the 10-Year Treasury being more than 4% indicates inflation might persist, leading investors to allocate more capital to risk assets, which bitcoin is benefiting from.

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Bitcoiners rejoice!

Under the proposed law, almost every blockchain would be considered centralized enough to be classified as a security. This means cryptocurrencies like Ethereum, Solana, Ripple, and others could be regulated like company stocks because they aren't "decentralized enough" according to the law's strict standards. Only bitcoin would likely qualify as truly decentralized and avoid being labeled as a security.

There are many advantages for an asset class to be categorized as a commodity rather than a security. For instance, with respect to business operations, entities dealing in commodities enjoy lighter regulation, fewer discloser requirements, lower legal costs for ongoing operations, and reduced need for specialized compliance staff, which translates into less liability risk.

Under lighter regulation, businesses retain more profits and can roll out new ideas faster, allowing them to quickly adapt to what the market needs. This freedom in decision-making creates a positive ripple effect—teams can experiment with new features more freely, easily connect with various financial services, and list their asset on more platforms. The end result? The asset becomes accessible to a much wider range of users.

This builds upon the notion that bitcoin is a strategic reserve asset worth holding over a longer time period, as the user base expands, regulation becomes favorable, and more and more entities see bitcoin as a true store of value.

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