Crypto has a chance to join polite society — if it can get out of its own way

Analysis by Allison Morrow, CNN

New York (CNN) — Since the election, it’s been Christmas morning for the crypto faithful.

After years of complaining that digital assets have been unfairly constrained by hostile regulators who just don’t get it, the industry now can look forward to an American president openly plugging their products and installing cheerleaders in positions where once there were cops. Mainstream money is flowing in. A US bitcoin reserve is on the table.

There’s almost nothing standing in crypto’s way. Except, perhaps, crypto itself.

“We kind of have a history of shooting ourselves in the foot,” Matthew Homer, a former financial regulator and now general partner of the Department of XYZ, a crypto venture firm, tells me. “I worry that we may go a little too wild, and then things come crashing down again.”

The party has already started.

Bitcoin, an industry bellwether, cruised comfortably past a $100,000 milestone earlier this month, rising some 50% since Election Day alone and more than doubling over the past year. That’s especially wild considering crypto’s brand was firmly in the gutter this time last year, when everyone was still trying to army-crawl out from under the shadow of Sam Bankman-Fried, the former crypto kingpin who was convicted of a multibillion-dollar fraud in November 2023.

Even for a sector known for its boom-and-bust cycles, this rally has felt different.

There were four major forces converging this year that lit a fire under crypto:

• Mainstream money. A court effectively forced the Securities and Exchange Commission to approve a new financial product that the crypto industry had been pushing for years, known as spot bitcoin ETFs, or exchange-traded funds. In short, these ETFs made it easier for traditional investors to gain exposure to bitcoin’s price movements without all the hassle of actually owning bitcoin and keeping it in a digital wallet.
• The halving. Roughly every four years, the reward for creating bitcoin (a process called “mining”) gets cut in half, increasing its scarcity and, typically, inflating its value. The halving took place in late April, adding fuel to the rally that began with ETFs.
• Easy money. Risky financial assets like crypto tend to do better when money is cheap, so the Fed’s pivot to cutting interest rates in the last three months has been welcome news for investors of all stripes.
• The Trump effect. During the presidential election, Donald Trump did a 180 on crypto, which he’d previously dismissed as a scam, promising to cater to the industry’s interests if reelected. Key among those interests: Getting rid of Gary Gensler, the SEC chair who has made no secret of his disdain for crypto. At the same time, industry PACs funneled a record amount of money into the race. While that money went to both parties, the crypto groups targeted key opponents, including spending $40 million to help unseat Senate Banking Chair Sherrod Brown.

The president-elect has since tapped huge crypto boosters for key positions in his administration, including Howard Lutnick, the financier with deep ties to stablecoin Tether, to run the Department of Commerce, and Paul Atkins, an advocate of softer regulation, to run the SEC.

The industry is quick to argue that it’s not looking for special treatment, just a regulatory regime that isn’t trying to smother crypto businesses or force them offshore.

“If you’re a regulator… you don’t get to pick and choose which markets exist — your job is to sort of accept that markets do exist and figure out the best way to put guardrails around them,” said Homer, who previously oversaw licensing for digital assets at the New York State Department of Financial Services. “I’m excited about just going back to basics of having people in these roles who are open to having a dialog with the industry.”

Skeptics still see crypto as the tulip mania of our time — a speculative asset with zero underlying value. A textbook Greater Fool play if ever there was one.

But even some of the sector’s biggest critics feel the sea change. When I talked to Cas Piancey, a reporter with the trade publication Protos and co-host of the Crypto Critics’ Corner podcast, he seemed resigned, ready to buckle up and see what happens.

When he first started reporting on crypto, he told me, he hoped to warn people about the risks so they don’t throw away their money.

“I realized that I was in a casino yelling at gamblers, ‘Oh my God, you’re gonna lose!’ And they’re like, ‘Do you think I don’t know how slot machines work?’” he said. “And I’m just like, OK, I shouldn’t be trying to win hearts and minds at the casino. I can just talk about the problems with the casino and try to broadcast to a larger audience about the risks involved, as opposed to actually trying to convince anyone to leave.”

The next few years are going to be a big test. Is crypto really done with its life of crime and ready to make it in polite society? Can it grow without blowing itself up and inflicting collateral damage on the financial system that has historically been walled off from its volatile ecosystem?

As ever, it’s a huge gamble.

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