Trump’s victory could mean big changes for Fintech and Crypto.
With the election of Donald J. Trump as the 47th President of the United States, along with the flip of the Senate to the Republicans and, as of this writing, likely the House of Representatives, big changes in tone, activity level and focus will be forthcoming for the financial technology (Fintech) and cryptocurrency (Crypto) industries. It is important to remember, however, that many activities are dually or solely regulated by state, so change in those areas will not be as dramatic. In fact, some state regulators will see their role as a check on the federal government.[1]
Fintech
As noted below, the Securities and Exchange Commission (SEC) will have new leadership when Chair Gary Gensler is asked for his resignation or terminated on January 20. The SEC is a five‑member body which is bipartisan by statute, so the Commission is always comprised of three members of the President’s party and two members of the other party. Formerly chair of the Commodities Futures Trading Commission, Gensler’s stalwart leadership has, at times, clashed with financial innovators looking to break through traditional regulatory barriers and hurdles. The SEC’s failure to promulgate significant rulemaking and regulations around cryptocurrency—choosing instead to regulate by enforcement actions—has riled stakeholders on all sides. The SEC has pursued an aggressive enforcement strategy that has led to big fines and costly litigation and appeals which have crippled even some of the largest players in the Fintech industry.[2] With the current lack of regulatory clarity and operational risk to Fintech and Crypto companies in the U.S., a large majority of such companies have decided to organize and operate in foreign jurisdictions. Many of these companies have “sandbox” regulatory environments in foreign jurisdictions, resulting in the U.S. falling relatively behind as a place for innovation and market leadership in these areas.
With the changes in the SEC, there could be greater regulatory clarity in the Fintech space, supporting growth and increases in deal size and institutional investments. Additionally, Republican legislation, which typically favors capital markets and laissez faire regulation, may result in a path for easier capital raising and reforms in small business crowdfunding, Regulation A cap increase from the current $75 million and possible changes to broaden the “accredited investor” definition. Office of Compliance Inspections and Examinations reviews of market participants may be less burdensome, as may be the Division of Corporation Finance disclosure reviews that accompany initial public offerings (IPOs), other public offerings and Regulation A filings. Such changes may lead to an increase in merger and acquisition deals, IPOs, and capital markets activity.
More broadly, the Federal Reserve Chair Jay Powell, whose term extends to 2026 and cannot be removed by the President except for misconduct, is likely to stay in place. The 25-point interest rate cut last week, combined with the 50-point cut last month and the improving economic environment and lower inflation numbers, should be enough to stave off any pressure.
The Office of the Comptroller of the Currency (OCC) is an independent agency in the Treasury Department, and a new head will take the lead from Acting Comptroller Michael J. Hsu. It remains to be seen if the notion of more open banking reforms will take hold. For instance, under the first Trump Administration, new Fintech bank charters were considered a “lite” alternative to traditional bank charters that could provide lending capabilities. Special purpose national bank charters provided to Fintech companies[3] would not need to take deposits, marking a big concession from the traditional requirements of the bank. If this idea is floated again, we expect states to step up and fiercely contest the right of the OCC to grant these licenses[4]. The core objection of states, not looking to lose state licensing turf to the federal government by preemption, was that the National Bank Act did not allow for these types of ‘no deposit’ licenses in considering what constitutes the “business of banking.”
On the other hand, more states might take the lead of Wyoming and allow for special purpose Fintech banks of their own to form with an alternate set of rules for compliance and capital and little or no deposit requirements.[5]
Blockchain and Cryptocurrency
President-elect Trump promised during the campaign to fire SEC Chair Gary Gensler, make the U.S. the “crypto capital of the planet,” appoint pro-Crypto regulators, create a national strategic bitcoin reserve, establish a Crypto Presidential Advisory Council, and bar the Federal Reserve from issuing a digital currency to compete with stablecoins. Republicans also took control of the Senate (with pro-Crypto candidates beating Crypto skeptics, as with Senator-elect Bernie Moreno defeating the Senate Finance Committee Chairman Sherrod Brown in Ohio) and the GOP is currently favored to narrowly retain its majority in the House of Representatives.
Since Trump’s election, digital asset prices have soared, with Bitcoin hitting record highs over $90,000 as of November 13, up about 30% in just five days. Crypto-related shares outran the rest of the stock market and Crypto exchange Coinbase shot up 17% on the Wednesday following the election. Online stock marketplace Robinhood Markets, which also offers crypto trading, rose 12% and MicroStrategy, which claims to be the “largest corporate holder of bitcoin,” jumped 10%.
As noted above, look for Trump to immediately remove Chair Gensler and potentially install pro-crypto SEC Commissioner Hester Peirce as acting Chair until Trump’s ultimate SEC pick receives Senate confirmation, or Commissioner Peirce might be the permanent Chair.
A stablecoin bill will likely move through Congress quickly, and a repurposed or chopped up version of the pro-Crypto bill FIT 21 (which passed the House with a bipartisan majority in May[6] will be a priority for the Republican trifecta and already has substantial bipartisan support. Legislation will likely give clarity on the questions of whether cryptocurrency assets are “securities” or “commodities” (so-called Howey reform and guidance) and which regulatory authority is charged with oversight, all of which have been major points of contention and confusion among the public and government since the rise of Crypto.
The most significant and immediate change will likely be the end of so-called “regulation by enforcement” by the SEC and other government agencies against the Crypto industry, which will provide greater certainty for institutional investors to come off the sidelines and help fund, support and grow this emerging technology. Most major businesses in the space have been at odds either formally or informally with the SEC and other regulators with regards to the regulation of cryptocurrency tokens[7] and whether exchanges themselves need to be registered broker-dealers.[8]
Additionally, prediction markets like the crypto platform Polymarket received a boost for consistently showing Trump as the heavy favorite over Kamala Harris when the polls were instead showing a very tight race. Expect these markets to grow in popularity and utility, especially with many voters and commentators frustrated with the broken polling system. We also expect the influence of Elon Musk, as well as the pre-election launch of President Trump’s own crypto business World Liberty Financial,[9] will accelerate timing on these issues and serve to streamline the crypto reform process like never before.
Manatt, Phelps & Phillips, LLP, is a leading law firm in the fintech, financial services and blockchain practice areas. We advise on and structure innovative deals for U.S. and international clients, providing timely regulatory strategy and guidance in the continuously evolving fintech landscape. Manatt Financial Services stands ready to serve you. Manatt was awarded a top ranking in Chambers’ 2024 FinTech Legal USA category, and our Blockchain and Cryptocurrency practice is led by Brian S. Korn and Mike Katz.
[1] “Governor Newsom convenes a special session of the Legislature to protect California values,” Nov. 7, 2024. https://www.gov.ca.gov/2024/11/07/special-session-ca-values/; “Governor Hochul and Attorney General James Commit to Protecting the Fundamental Freedoms of All New Yorkers as President-Elect Trump Prepares to Take Office,” Nov. 6, 2024. https://www.governor.ny.gov/news/governor-hochul-and-attorney-general-james-commit-protecting-fundamental-freedoms-all-new.
[2]SEC: Crypto Assets and Cyber Enforcement Actions; available at https://www.sec.gov/securities-topics/crypto-assets
[3] Office of the Comptroller of the Currency: “OCC Begins Accepting National Bank Charter Applications From Financial Technology Companies” available at https://www.occ.treas.gov/news-issuances/news-releases/2018/nr-occ-2018-74.html.
[4] See, e.g., https://rollcall.com/2021/06/29/state-challenges-to-fintech-charters-a-losing-battle-so-far/.
[5] See, e.g., https://www.coindesk.com/consensus-magazine/2023/06/27/wyoming-regulatory-clarity-and-crypto-friendly-banks-fuel-blockchain-revolution/.
[6] H.R. 4763 (118th Congress, 202302024): “The Financial Innovation and Technology for the 21st Century Act,” https://www.congress.gov/bill/118th-congress/house-bill/4763
[7] Bloomberg Law, “SEC Appeals $120 Million Judgment in Ripple Labs XRP Lawsuit,” Oct. 2, 2024, https://news.bloomberglaw.com/crypto/sec-appeals-125-million-judgment-in-ripple-labs-xrp-lawsuit
[8] Securities and Exchange Commission, “SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency,” June 6, 2023. https://www.sec.gov/newsroom/press-releases/2023-102
[9] https://www.worldlibertyfinancial.com/.