Will U.S. Election Change Crypto? Maybe, but TradFi Giants Likely to Plow Ahead Regardless

Global markets are jittery as traders watch the U.S. election. For crypto, a big unanswered question is whether the results might persuade the giants of finance to curtail or ramp up their ambitions for the industry.

Several experts CoinDesk spoke with agreed that, regardless of the outcome, TradFi is unlikely to back away from crypto.

Crypto traders are betting that Donald Trump winning a second term as president would be positive for digital asset prices, at least in the short term, and a victory by Vice President Kamala Harris would be negative. Large financial institutions, however, seem to be looking past that action in markets and viewing the election as a temporary catalyst that won't derail the adoption of crypto and blockchain technology over the long haul.

“Adoption of digital assets at the institutional level will very much continue globally no matter who wins the election," said Phillip Shoemaker, executive director of Identity.com, a non-profit organization providing decentralized identity verification.

Amid the cacophony leading up to Tuesday's election, it's been easy to overlook several positive developments on that front this week. Swift — the TradFi interbank messaging system — partnered with UBS and Chainlink to test allowing digital asset transactions to settle with fiat payment systems across more than 11,500 financial institutions in over 200 countries and territories. Meanwhile, Citigroup and Fidelity International developed a proof-of-concept for an on-chain money-market fund that includes a digital foreign exchange swap.

That's just this week, building on many other similar stories this year. The point is: Firms such as Swift and Citigroup would be unlikely to announce such things if they feared this week's elections were likely to kill these initiatives.

That said, there is a catch. The question isn't whether the election result will stop the adoption; it's whether it will affect timing.

"It’s pretty clear to me that the outcome of the election will have a significant impact on the pace of such adoption," said Shoemaker. "If Trump were to win, I think we’d see a flurry of new ETFs in the United States for a wider variety of digital assets. We’d also see an acceleration in the use of stablecoins for payments, along with more and more corporations incorporating digital assets in one way or another into their strategies," he said.

Echoing his sentiment, Markus Levin, co-founder of XYO Network, the world’s first blockchain geospatial oracle network, said: "If pro-crypto candidates win out in these elections, then we would see not only broader institutional adoption in the United States but also international organizations like the IMF and World Bank really warming up to crypto in a way that we just haven’t seen yet."

On the other hand, a Harris win may slow down the pace of adoption due to a more restrictive regulatory regime. (The Biden administration that she's served in since 2021 has tended to be highly restrictive on crypto.) "If Harris were to win, I still think institutional adoption would happen. But it would happen more gradually," said Levin, pointing out that the Democrats are slowly coming around to crypto, including Harris herself, which means "it will just take more time for growing this Democratic support for the industry to have a material impact on the broader crypto market.”

Shoemaker, however, has a slightly different take on a potential Harris win. He thinks prices of bitcoin (BTC) and Ethereum's ether {{ETH} would be fine under her presidency, given that both assets have already been allowed to be packed up as exchange-traded funds in the U.S. Where it might be troublesome and potentially harm the pace of institutional adoption is how the Democrats will treat other digital assets.

"I worry that altcoins could tank," he said. "I say this because there’s a decent chance that those like [Securities and Exchange Commission Chair] Gary Gensler would be empowered under a Harris Administration, and in turn, a number of digital assets might continue to face intense regulatory scrutiny. In such a scenario, adoption at the institutional level in the United States would likely be slowed and restricted.”

Both points resonate. It wasn't long ago that the crypto industry was drowning in not only an unrelenting crypto winter but also intense regulatory crackdowns. In the wake of FTX's spectacular implosion, many wondered whether something dubbed "Operation Choke Point 2.0" — an alleged coordinated effort by the Biden administration to cut the cryptocurrency industry off from the U.S. banking sector — was in action. Many industry players took their businesses out of the U.S. and set up shop overseas.

It wasn't until recently—albeit after Trump's endorsement of the industry this year—that this sentiment started to shift slightly among the Democrats, leading to a softer stance on the sector. However, Gensler will continue to remain a question mark for the Democrats, given his tough stance on crypto, despite the call for his replacement by even Democratic crypto voters.

Read more: How Democrats Have Shifted on Crypto

Also, large institutions crave regulatory clarity. So if Harris wins, the uncertainty around how she really feels about crypto might make them a bit cautious about their exposure to the industry. "The current market data suggests that institutional investors are particularly sensitive to regulatory clarity, and a Harris administration would need to change their historical stance to provide the predictability they seek," said Brian Dixon, CEO of Off the Chain Capital.

"Institutional adoption under Harris could follow a more conventional path, with an emphasis on compliance and integration with existing financial infrastructure," he added, noting that a Trump win, on the other hand, will "catalyze" more dramatic market moves.

With election results coming in the hours or days ahead, it's easy to get bogged down in the short-term debate around how the outcomes will change the crypto landscape. However, zooming out, it's worth noting that despite many turbulent market conditions and regulatory roller coasters, the digital assets industry has continued to advance and gained not just more crypto supporters but the attention of giant traditional institutions.

The value of crypto to "bank the underbanked" continues to drive innovation in providing better financial services to those who otherwise wouldn't have access to them.

As put by Michael Casey, CoinDesk's former chief content officer who is now chairman of The Decentralized AI Society: “These shorter-term fixations on the market miss the bigger picture of what’s at stake in terms of the place that blockchain technology should occupy in the evolution of the technology that’s impacting our lives."

Read more: Here's Why Today's U.S. Election Matters for Crypto