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Cryptocurrency, once on the fringe of finance, is poised to have a breakout year in 2025. Already, one version of cryptocurrency handles more money daily than the entire Visa credit card system. And both presidential candidates as well as Democrats and Republicans in Congress increasingly recognize the potential and pitfalls of this new and rapidly growing form of money.
On Monday, former President Donald Trump is expected to underscore cryptocurrency’s prominence as he publicly announces the launch of his sons’ crypto project, known as World Liberty Financial.
Crypto was originally conceived as a digital currency that would democratize both investment and lending. Instead of securing value and transactions through government involvement, it did so through innovative technology, allowing funds to zip around the world at high speed and low cost.
That could be a boon to commerce but has also attracted unsavory elements – from Sam Bankman-Fried’s fraudulent FTX company, which collapsed in 2022, to drug cartels and terrorist organizations that have found refuge in a shadowy cryptocurrency underworld.
Now, legitimate crypto companies are trying to distinguish themselves from “bad boy” operators. So a growing swath of players in this nascent high-tech industry, which was once proudly nonconformist, is now pushing for the opposite: federal regulation.
Increasingly, U.S. lawmakers are listening. With the crypto world growing in size and influence, they worry that another high-profile collapse of a fraudulent crypto exchange or currency could wreak havoc on the traditional financial system. Also, pro-crypto legislators want to ensure that the United States maintains its lead in a new and potentially transformative digital technology.
“We have to have a complete regulatory framework so the industry doesn’t move to Europe,” says Sen. Cynthia Lummis, a Wyoming Republican and cryptocurrency backer on the Senate banking committee. She expresses cautious optimism that she and her colleagues may be able to advance legislation before the new Congress begins in January. “But certainly next year will be an important year for digital assets.”
The latest evidence of growing interest comes from the presidential campaign trail. Current GOP nominee Mr. Trump, a skeptic four years ago, wholly embraced cryptocurrency in July, calling for a national strategic reserve of the digital money. Democratic nominee and Vice President Kamala Harris has not addressed the topic, but her staff has reached out to the industry, and her campaign, like Mr. Trump’s, is benefiting from funding by pro-crypto groups. On Friday, a group of crypto supporters for the Democratic nominee called Crypto4Harris held the first of at least five fund-raisers for her.
An emerging industry or a Ponzi scheme?
The increasing political attention and the stepped-up fundraising and lobbying by segments of the industry suggest that Congress may finally be ready to regulate the industry in a comprehensive way, replacing the current piecemeal approach by federal and state regulatory agencies.
Regulation could also help the industry by making it harder for fraudsters to operate, research suggests. Last year, losses from cryptocurrency schemes rose nearly 50% from the year before and defrauded Americans of more than $5.6 billion, according to the FBI. One study found that more than 70% of the trades at cryptocurrency exchanges not regulated by a state were illusory – involving purchases and then immediate sales to boost artificially the exchanges’ volume of sales. Another study found that requiring periodic releases of information makes exchanges more efficient and manipulation more difficult.
Such problems feed into cryptocurrency skepticism, which remains widespread. Critics call the digital money a giant Ponzi scheme, which benefits no one except criminals.
“There’s no there there,” says Joel Mokyr, economic historian at Northwestern University in Evanston, Illinois. People trust currencies – dollar bills or euro notes – to hold their value because they’re issued and backed by responsible governments. By contrast, confidence that a string of computer code will hold its just because others trust in it has the makings of a financial bubble, he adds. “It will collapse on its own.”
Challenges of regulation
Part of the challenge for legislators is that while cryptocurrency is easy to define, it’s hard to categorize.
A cryptocurrency is a form of digital money that also automatically tracks each transaction. Those transactions are recorded in a way such that anyone can look them up and verify them through a technology known as blockchain. That makes the currency hard to counterfeit.
Thanks to such security and transparency, cryptocurrency’s popularity has soared. And since new cryptocurrency is minted through a process that requires a lot of time, energy, and expensive computer power, its supply is limited. Growing demand and limited supply has caused the value of many of the most popular versions of these currencies to explode. The first and most popular version, bitcoin, was worth a tiny fraction of a penny when it was first traded in 2009; today, a bitcoin is worth more than $55,000.
With market forces, not government, determining value, many people are piling into bitcoin and other cryptocurrencies with fluctuating values. They hope their value will go up, like a speculative stock. Others buy them as a hedge against inflation, like gold. This multiuse makes it harder to regulate bitcoin and its competitors. Should they be overseen like stocks are? Or like commodities, similar to copper or oil? Or do they require a completely new federal agency to regulate them?
Another version of cryptocurrency, known as stablecoins, is more straightforward. Their value is tied to a real currency, often the U.S. dollar. If widely adopted, they could zip dollars or euros or Chinese yuan around the world, speeding international commerce and personal transactions alike – for example, allowing immigrants to send money back home at low cost.
But the same technology also fosters illicit activity, whether it’s foreign nations evading Western sanctions or criminals moving money without the hassle of suitcases full of cash. A Wall Street Journal investigation published last week found that a dollar-linked stablecoin called tether allows internet scammers, Hamas, and other U.S.-designated terrorist organizations to launder money. Tether transactions already outpace Visa.
That’s why some in the crypto industry believe stablecoins will be the first target for comprehensive legislation. Backers of the technology say Congress has the opportunity to encourage legitimate digital commerce while cracking down on digital crime.
It’s always a challenge for Congress to keep pace with rapidly developing and complex technologies. But Washington’s understanding of cryptocurrency “has grown leaps and bounds over the last few years,” especially stablecoins, says a crypto industry executive who requested anonymity so he could speak candidly about the political landscape for cryptocurrency.
Republicans on Capitol Hill are generally ahead of their Democratic colleagues in understanding the technology’s potential. But Democrats are more likely to push for regulation that would rein in companies that have shoddy or illicit finance controls. To be effective, the executive adds, “this actually needs to be bipartisan.”
And so far, it has been. “There are members of Congress on both sides of the aisle that see this [potential legislation] as a win-win,” says Tonya Evans, a law professor at Penn State University and author of the book “Digital Money Demystified.” “I’m actually more optimistic right now” than a year ago about legislation in 2025, she adds.
The presidential election may nudge Congress in that direction. If Mr. Trump wins, he is expected to push for crypto-friendly legislation and end the aggressive stance that the federal Securities and Exchange Commission has taken against some crypto companies. Some cryptocurrency enthusiasts say Ms. Harris, while mum on the subject so far, is more amenable to high-tech innovation than President Joe Biden, given her background in California politics.
“We’re really reading the tea leaves, but I’ve been heartened,” says Ms. Evans, a speaker at a Crypto4Harris event last month. “You don’t win statewide elections on several occasions in California without being tech-forward.”
Staff writer Christa Case Bryant contributed to this story from Washington.
