Markets
Trump’s Cryptocurrency Endorsement: Europe’s Next Challenges
Bitcoin has surged further following former US President Donald Trump’s keynote speech in support of cryptocurrencies. This development could reignite concerns about European Union regulations on the controversial market.
ANNOUNCEMENT
Republican presidential candidate Donald Trump delivered a keynote address to cryptocurrency advocates at the Bitcoin 2024 conference. The former US president promised to make the US “the cryptocurrency capital of the planet and the bitcoin superpower of the world.”
Positioning himself at odds with the Biden administration and Democratic nominee Kamala Harris, Trump has pledged to create a “strategic reserve” of Bitcoin for the U.S. government. He has also promised to fire Securities and Exchange Commission (SEC) Chairman Gary Gensler if elected and “appoint an SEC chairman who will build the future, not block it.” Last week, Trump became the first presidential candidate to accept cryptocurrency donations, raising $4 million (€3.69 million) in cryptocurrency for his campaign.
While Trump’s support for cryptocurrencies may appeal to voters who support digital tokens, the vigorous pro-crypto campaign could bring new regulatory risks to European policymakers. The monopolistic position of digital tokens dominated by the USD could also pose a threat to the world’s second-largest fiat reserve currency, the euro.
A cryptocurrency renaissance
Cryptocurrency markets have seen a recovery this year, driven by the trajectory of central bank easing monetary policies. Bitcoin’s halving event and the SEC’s approval of spot Bitcoin exchange-traded funds (ETFs) have also triggered bullish momentum in these digital tokens. Since Biden’s withdrawal from the presidential race earlier this month, Bitcoin has rallied further amid growing speculation of a Trump victory in November’s election. The largest cryptocurrency, Bitcoin, has surged more than 13% over the past month to over $68,700 (€63,244) on Monday, just 6% below its all-time high reached in March 2024.
Trump’s promises at Saturday’s Bitcoin 2024 conference could serve as a catalyst for a further cryptocurrency boom if he becomes the next US president. This potential shift could prompt European policymakers to reassess the current regulatory regime.
The current EU regulatory regime
Over the past decade, cryptocurrencies and digital assets have seen significant growth in popularity and adoption. This rapid expansion has created the need for regulatory frameworks to ensure market stability, investor protection, and fraud prevention. The rise of Initial Coin Offerings (ICOs), security tokens, and stablecoins has highlighted both the potential for innovation and the associated risks within the financial system.
In September 2020, the European Commission presented the Digital Finance Package, which aims to ensure that the EU embraces digital finance while mitigating risks. The Markets in Crypto Assets (MiCA) Regulation was introduced as part of this package to regulate cryptocurrencies and digital assets. However, MiCA was adopted by the European Parliament and the Council in stages and only entered into force in June 2023, with partial application starting in June and full implementation expected in December this year.
A significant risk posed by cryptocurrencies is their potential use for money laundering and terrorist financing due to the decentralized nature of transactions. Since Russia’s aggression towards Ukraine, cryptocurrencies have been used not only to support Ukraine, but also to fund Russia’s military efforts. The head of sanctions at Chainalysis noted that: “Russian entities have turned to cryptocurrencies under intense pressure from international sanctions, using them for fundraising for private militia groups, ongoing ransomware attacks, and attempts to circumvent sanctions.”
A potential threat to the euro
Some EU regulators are concerned that the dominance of U.S. dollar-pegged stablecoins could pose a threat to the euro. Most stablecoins are pegged to the U.S. dollar, which helps maintain price stability over time. Cryptocurrency traders commonly hold stablecoins on exchanges as a means of trading between different cryptocurrencies. This mirrors the U.S. dollar’s dominance in commodities markets, where assets such as gold, silver, copper, and crude oil are also priced in dollars.
However, to back these stablecoins, a cryptocurrency exchange or stablecoin company must hold a corresponding amount of USD in reserve. As demand for stablecoins increases, it tends to strengthen the USD while weakening the euro. A significant increase in Bitcoin’s prominence in the US would likely lead to more stablecoin issuance, which could put further pressure on other currencies, including the euro.