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DANIEL:

From Schwartz Media, I’m Daniel James. This is 7am.

Crypto is skyrocketing, ever since Donald Trump won the US election.

Trump is set to lead the most pro-crypto administration ever, promising a crypto advisory council and appointing a prominent pro-crypto hedge fund manager as his pick for Treasury Secretary.

His campaign received considerable donations from the crypto industry, and there’s hopes among the industry he’ll come good on his promise to create a national bitcoin stockpile.

Today, managing editor of The Saturday Paper Emily Barrett, on why Trump backs crypto and what it means for the global economy.

It’s Wednesday, November 27.

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DANIEL:

Emily, it seems like crypto is something where either you know a lot or nothing about, but what we do know is that it's going gangbusters since Trump was elected. So can you explain why that is?

EMILY:

Yeah, so the reason is that Trump has clearly declared himself the crypto president.

Audio excerpt — Donald Trump:

“This afternoon, I'm laying out my plan to ensure that the United States will be the crypto capital of the planet and the Bitcoin superpower of the world, and we'll get it done.”

EMILY:

So Trump, you know, he used to be not such a fan of crypto. You know, he's on record in the past saying that he thought it was too volatile. But I think that we got to the point, really, where Trump began to have a few crypto sponsors in his ears.

Audio excerpt — News Reporter:

“So nearly half of all the corporate money being pumped into this year's election is coming from the crypto industry.”

Audio excerpt — News Reporter:

“The industry raising more cash for 2024 campaigns than any other single issue group.”

EMILY:

The crypto industry was pouring like hundreds of millions of dollars into the presidential race. It was supporting lots of PACs. And essentially, you know, Trump was kind of chasing votes. He had been told by several influential people in the crypto industry that, you know, there were sort of upwards of 20 million votes to be had, and particularly among a demographic that he's very sympathetic towards, sort of a young male contingent who are very strong boosters of cryptocurrencies. And so he's had something of a kind of come to crypto moment over the past few years.

DANIEL:

So it's had a long and checkered sort of background as a market. But how did the fascination with crypto come about? What's the appeal from a financial perspective?

EMILY:

So certainly the main thing that we know about crypto is that you can make a lot of money very fast. You can also lose a lot of money very fast. You know, crypto sort of started in 2008. For a long time it was just trading around, you know, some ten US cents. This is Bitcoin, which was the sort of largest cryptocurrency. It went from sort of 25,000 in 2017 and then it fell back to 6000. You know, it's had all these peaks and troughs over the years. We had it getting to a peak of 88,000 in November of 21, and then it fell right back to 25,000. So, you know, it's it's literally halving its value in the course of these massive crashes that we've seen. Now, as I say, it's broken through 150,000.

It's really understandable that this financial instrument really came about and started to gain traction at the time of the global financial crisis.

So we saw a lot of people who felt that they had been shut out of the economy. They'd lost a lot of money, they'd lost their houses. They were feeling as if the financial markets were really for the elite, for people who were wealthy investors. It also promised, you know, these massive gains. All of a sudden it became almost like a lottery. And because it was an unregulated market, it's been able to sort of grow really exponentially in the shadows. And so it can't be underestimated how big this market has become. It's now worth 3.4 trillion U.S. dollars globally.

DANIEL:

During his campaign, Trump signalled an enthusiasm for cryptocurrencies. Can you tell me about what he said he would do if he got in?

EMILY:

Yeah. He was promising the opposite approach to what Biden had done, which was, you know, really overseeing a regime of crackdowns on crypto.

Audio excerpt — Donald Trump:

“I pledge to the Bitcoin community that the day I take the oath of office, Joe Biden, Kamala Harris's anti crypto crusade will be over. It will end. It'll be done.”

EMILY:

So what we heard about a lot from Trump during the course of the election campaign was the need to get rid of people who were sort of obstructing the crypto market. And among those people was Gary Gensler, who is the head of the SEC. That's the Securities and Exchange Commission. That is the largest regulator in the US charged with overseeing the financial markets and instruments.

Gary Gensler took a very combative approach to the crypto industry, which really put him offside with a lot of the executives and investors in that market, and nobody really liked what he was doing. The SEC managed to recoup something like $8 billion in penalties over misconduct. And so, obviously, this was a person that has fallen well foul of the crypto fans. He was going to be removed by Trump as soon as he came to power.

Audio excerpt — Donald Trump:

“On day one, I will fire Gary Gensler and appoint a new SEC chair.”

EMILY:

And he has now actually announced that he's stepping back and will be gone in January of next year.

Trump has said things like, he'll create a crypto advisory council that will help to sort of tell him what to do in terms of crypto policy. He's brought people like Elon Musk and Vivek Ramaswamy into a cost cutting regime for the government. And definitely they have his ear in terms of where digital currencies might be able to help in that effort. He's also mentioned that he would like to see more Bitcoin mining. That's also a little controversial in the sense that Bitcoin is not a particularly green pursuit. Mining this is incredibly energy intensive. Even Elon Musk himself has acknowledged this. He used to accept Bitcoin payments for Tesla and he halted them for a while there because he said that actually that was having more of an impact in terms of emissions and fossil fuels reliance than he was achieving with his cars.

And Donald Trump promised to create a sort of a national stockpile of crypto. And so there would be a federal Bitcoin reserve or federal cryptocurrency reserve.

DANIEL:

Coming up after the break, what happens when crypto goes mainstream?

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DANIEL:

Emily, a Trump administration could see cryptocurrency become more mainstream. So what does that look like in the real world?

EMILY:

So if that means better regulated assets, then that would be a good thing, right? But that's not actually what Trump appears to be proposing. So what we're likely to see is a lot of the long held sort of aspirations of an aggressively experimental market coming to fruition, a lot of them being met, more people getting invested, making it bigger and more pervasive and more part of the financial system. Right. Regulators were already really struggling to keep up with crypto scams, and that may just get worse in a freer market. The broader the reach of crypto, the more damaging it can be if the laws and let alone the watchdogs can't keep it in check. If we see the boom and bust that we've seen so far in crypto, that can be a lot more widespread and have a lot bigger effect than it has to date.

DANIEL:

So a bigger market, and one where the Securities and Exchange Commission stops going after new crypto ventures. That could increase the risk of investing in crypto and have a whole bunch of knock on effects for economies globally.

EMILY:

Yeah. Yeah, that's the worst case scenario. I mean, and it's possible. Look, you can try and be optimistic about it and say Trump’s presumably speaking to a lot of very established institutional investors, none of whom really want to see a crisis. They may not be the best stewards of the economy, but they certainly don't want to see their own assets destroyed. You know, you could hope that maybe there'd be some checks and balances, but we can't actually necessarily rely on that being the case, certainly not when there are so many boosters of crypto involved at the highest levels of government.

DANIEL:

And how do you think the continued growth of crypto in the United States will affect us here?

EMILY:

Crypto is pretty pervasive in Australia. It's been hard times the market over the last couple of years, so these numbers may have changed a bit, but definitely 1 in 4 at one point was what we are talking about. 1 in 4 Australians invested in crypto. So it's a big potential market. It's got a lot of room for growth as well. Our trend interestingly in Australia has been towards more regulation because we had a lot of people, 30,000 people and upwards here were actually embroiled in the FTX collapse that happened on the stand. Bankman-fried you know, that's reached the eyes and ears of politicians here who are concerned about the risks that crypto poses.

And what we saw actually after the US election is some politicians sort of coming out and saying a lot more about the action that needs to be taken to protect potential investors. So Liberal Senator Andrew Bragg has been very vocal about this. He chaired a select committee on crypto regulation in 2021, and among the recommendations arising for that were a market like licensing regime for digital currency exchanges and and including capital adequacy tests and auditing. And all of that would fall under the Treasury portfolio. So he's actually been very critical of the Albanese government for not legislating any rules for cryptocurrency exchanges, including the consumer protections that would come from that.

And, you know, we've got people like Stephen Jones, who's an MP and he's the Assistant Treasurer and Minister for Financial Services in the Labor Government. He's working on steps towards regulating digital and crypto assets and compiled some legislation to head off scams and fraudulent behaviour online.

The steps are being taken to try and limit that, but we know that it's really hard to stay ahead of online scams. The risks that we sort of look to in Australia is, you know, we're struggling to implement gambling legislation at this point. Crypto does kind of turbocharge that market as well. And you know, there's been the rise of crypto prediction markets where people can literally sort of bet also on political outcomes in elections. But there is a best case scenario in which, you know, crypto is actually brought into the mainstream in the way that other financial assets have been over decades.

And that is there are steps towards regulation that brings it better under the umbrella of the watchdogs that fraudulent behaviour is detected and penalised so that it can really make the market a safer place. And that would be the scenario in which you head off a crisis in which you end up with a more benign usage of crypto in Australia.

DANIEL:

Emily, it's all very fascinating and thank you for taking your time to run us through it.

EMILY:

Thanks a lot. Daniel, Great to talk.

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DANIEL:

Also in the news,

More politicians are speaking out against the proposed social media ban for under 16s, which Labor is hoping will pass this week.

Yesterday Nationals Senator Matt Caravan told ABC radio that a ban’s “clumsy hurdles” could make the situation worse, and could have free speech implications.

Canavan joins The Greens and cross benchers David Pocock and Fatima Payman in voicing concerns about the speed at which the bill has been brought to the table and the lack of detail as to how the ban will work.

It follows the government’s review into the proposed ban which lasted for just one day despite receiving over 15,000 submissions.

Meanwhile, Trump has already come out swinging on tariffs, promising to impose 25% tariffs on his closest neighbours Canada and Mexico from the first day of his Presidency.

In a post on far right social media, Trump said the tariff will remain in effect until quote, “drugs, in particular fentanyl, and illegal aliens stop the invasion of our country.”

Should he follow through with the tariffs, Trump would be breaking the free trade agreement between the US, Mexico and Canada that he signed into law in 2020.

That’s all for now, we will be back tomorrow.

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