Bitcoin prices surged following former US President Donald Trump’s keynote address at the Bitcoin 2024 conference, where he voiced strong support for cryptocurrencies. Trump’s remarks could reignite concerns about the European Union’s regulatory stance on the burgeoning crypto market.
In his address, Trump, the Republican presidential nominee, pledged to transform the United States into “the crypto capital of the planet and bitcoin superpower of the world.” He proposed the creation of a Bitcoin “strategic reserve” and vowed to replace Securities and Exchange Commission (SEC) Chair Gary Gensler with a new appointee who would foster innovation rather than obstruct it. Trump’s endorsement of cryptocurrencies is seen as a stark contrast to the policies of the current Biden administration and Democratic nominee Kamala Harris. Last week, Trump also became the first presidential candidate to accept crypto donations, raising $4 million (€3.69 million) in digital currencies for his campaign.
While Trump’s pro-crypto stance may attract supporters of digital currencies, it could also heighten regulatory risks for European policymakers. The dominance of USD-backed digital tokens poses a potential threat to the euro, the world’s second-largest reserve currency.
Resurgence in Cryptocurrencies
The cryptocurrency market has experienced a resurgence this year, fueled by central banks’ easing monetary policies and the Bitcoin halving event. The SEC’s approval of spot Bitcoin Exchange-Traded Funds (ETFs) has also driven bullish momentum. Bitcoin saw a significant rally after President Biden’s withdrawal from the presidential race earlier this month, with the largest cryptocurrency rising more than 13% from last month to over $68,700 (€63,244) on Monday, just 6% shy of its all-time high reached in March 2024.
Trump’s pledges at the Bitcoin 2024 conference could further propel the cryptocurrency market if he wins the presidency. This potential shift might prompt European policymakers to reconsider their regulatory frameworks.
The Current EU Regulatory Framework
In response to the rapid growth of cryptocurrencies and digital assets, the European Union has been developing regulatory frameworks to ensure market stability, investor protection, and fraud prevention. The rise of Initial Coin Offerings (ICOs), security tokens, and stablecoins has underscored both the innovation potential and associated risks within the financial system.
The European Commission introduced the Digital Finance Package in September 2020 to guide the EU’s approach to digital finance while mitigating risks. A key component of this package, the Markets in Crypto Assets (MiCA) regulation, was adopted in stages by the European Parliament and Council. MiCA came into partial force in June 2023, with full implementation scheduled for December 2024.
One significant concern is the potential for cryptocurrencies to facilitate money laundering and terrorism financing, due to their decentralized nature. The Head of Sanctions at Chainalysis noted that cryptocurrencies have been used for various illicit activities, including funding Russia’s military efforts in Ukraine and supporting private militia groups.
Potential Threat to the Euro
EU regulators are wary of the impact that the dominance of USD-pegged stablecoins could have on the euro. Most stablecoins are pegged to the USD to maintain price stability, and their use is prevalent on crypto exchanges for trading between different cryptocurrencies. This mirrors the USD’s dominance in global commodity markets.
To back these stablecoins, crypto exchanges or stablecoin issuers must hold equivalent amounts of USD in reserve. Increased demand for stablecoins typically strengthens the USD and weakens the euro. A surge in Bitcoin’s prominence in the US could lead to greater issuance of stablecoins, potentially exerting additional pressure on other currencies, including the euro.
Related topics:
