U.S. election results will likely shift the legislative and regulatory environment for crypto. With the caveat that campaign rhetoric doesn't always translate into policy actions, these developments may accelerate blockchain innovation in financial markets and could increase predictability for crypto businesses. A proposed bill to build a strategic bitcoin reserve already shifts the narrative for that asset, even if the proposed bill's prospects are unclear.
What's Happening
The Republicans' sweep of the White House, Senate and Congress sets the foundation for legislative and regulatory momentum. Policy discussions to date have been highly partisan relative to other countries, although this was beginning to change in the build-up to the election (see Background In Brief).
Why It Matters
The U.S. has lagged behind other major markets in advancing crypto regulation. Regulatory frameworks have emerged in other regions governing activities in crypto markets and requirements for stablecoin issuers (stablecoins are crypto assets, whose value is pegged to a fiat currency and that enable the use of blockchain technology for payments beyond crypto markets).
Shifting the regulatory approach from enforcement-led to rule-making could increase predictability. Crypto companies in the U.S. risk fines and enforcement actions relating to the listing of unregistered securities. This is due to the absence of regulatory clarity on which crypto assets are securities.
Another activity lacking clarity is the "staking" of crypto assets (locking assets in a smart contract to earn yields). Some entities have ceased to offer this service as part of a settlement with the regulator, while others continue to argue their case in court.
Although ether exchange-traded funds (ETFs) emerged in the U.S. in 2024, these don't allow staking and therefore don't allow investors to access staking yields.
What's Next
We expect developments relating to stablecoin legislation and custody early in 2025.
The lack of a regulatory framework for stablecoins in the U.S. has constrained the uptake of financial market use cases, such as tokenization in financial markets (the creation of traditional financial assets as tokens on a blockchain). Although the tokenization of money-market funds accelerated in 2024, regulatory clarity could spur investor confidence and help scale up these applications.
Global catch-up: More broadly, the lack of U.S. participation in global regulatory coordination efforts has impeded blockchain innovation in traditional financial markets. We believe the stronger involvement of the U.S. may allow already well-tested use cases to scale commercially, both domestically and globally.
A broadening market for crypto asset custodians? The Security and Exchange Commission rule "Special Accounting Bulletin (SAB) 121" requires entities holding crypto assets in custody for their clients to report these assets on their balance sheet with a corresponding liability. This makes it prohibitively expensive for U.S. banks to provide custody for crypto assets if the new administration reconsiders the proposed repeal of SAB 121, which Biden vetoed in July 2024 (see Background In Brief).
Will the Federal Reserve start buying bitcoin?
Senator Cynthia Lummis has proposed a bill that would require the Federal Reserve to accumulate 1 million bitcoin over five years (equivalent to about 5% of total bitcoin supply). Supporters of the proposal argue that bitcoin's fixed supply can mitigate the risk of currency debasement and help manage national indebtedness in the long term.
The proposal, if passed, would significantly affect bitcoin demand (and therefore its price), given bitcoin's fixed issuance schedule and because these purchases alone would exceed newly issued bitcoin over the period. The proposal could encourage other nations to follow suit.
Regardless of whether the proposal advances, the narrative has shifted around bitcoin as an asset in traditional financial markets.
Background In Brief
U.S. legislative proposals have stalled so far. In July 2024, the House approved a "financial innovation and technology for the 21st century" bill (FIT21), which on the crypto side sought to delineate the areas of coverage of each U.S. regulator. However, this bill has yet to clear the senate. Proposals also exist for regulating stablecoins, but none has come to a vote in the House.
Earlier this year, the House and Senate voted to repeal SAB 121, but this was vetoed by President Biden and the rule remains in place. As a result of SAB 121, there is little competition for crypto custody services in the U.S. Indeed, the custody of bitcoin and ether held in ETFs is highly concentrated, with a small number of crypto companies rather than traditional custodians.
Related Research
- S&P Global: Digital Assets Research
- Your Three Minutes In Digital Assets: New Rules Could Boost U.S. Stablecoin Adoption, April 23, 2024
This report does not constitute a rating action.
| Primary Credit Analysts: | Andrew O'Neill, CFA, London + 44 20 7176 3578; andrew.oneill@spglobal.com |
| Lapo Guadagnuolo, London + 44 20 7176 3507; lapo.guadagnuolo@spglobal.com |
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