Potential Implications of U.S. Election Outcomes on Digital Asset Markets

• The outcome of the U.S. elections will likely have significant implications for the digital assets industry. The next president and Congress may take up crypto-specific legislation and could make changes to tax and spending policies that affect broader financial markets.
• Current polling data and the implied odds from prediction markets like Polymarket suggest a tight race.[1] However, as of October 15, these data suggest that Republican control of the Senate appears likely. Grayscale Research believes a change in control of the Senate could be particularly relevant for crypto, given the Senate’s role in confirming presidential appointments of key regulators, like the SEC and CFTC Chairs.
• At the constituent level, however, data show that crypto is a bipartisan issue, with slightly higher levels of Bitcoin ownership among Democrats than Republicans. Moreover, specific candidates from both parties have expressed support for crypto innovation.
• Regardless of which party is in control, Grayscale Research believes that comprehensive bipartisan legislation could be the best long-term solution for the digital assets industry in the United States.

Despite the many issues at stake in the 2024 U.S. elections, the digital assets industry has managed to command a portion of candidates’ time and attention. This can be partly attributed to the evolving preferences of voting constituents: in national surveys conducted on behalf of Grayscale by The Harris Poll, we found that about half of likely American voters are more likely to vote for a candidate that is interested in staying educated/informed about crypto compared to one who is not.  The increased focus on crypto also reflects the fact that U.S. rulemaking lags other countries, even as the industry has continued to grow and innovate, so comprehensive legislation has become more pressing.

Below we consider potential election scenarios for the White House and Congress and their possible implications for crypto markets. For each outcome, we report the implied odds from Polymarket, a blockchain-based prediction market seeing a sharp increase in adoption this year.

Most outcomes are characterized by high uncertainty: both polling data and prediction markets suggest a closely divided race. However, these data suggest that a shift in control of the Senate (from Democrats to Republicans) seems likely, and this could be a particularly relevant change with direct implications for the crypto industry, given the Senate’s role in confirming presidential appointments.

White House

Polymarket Odds: Trump 57% / Harris 43% (as of October 15, 2024)

The upshot: A Trump victory would likely imply more supportive regulators and larger budget deficits, both of which could provide tailwinds for Bitcoin and crypto. But Trump’s fiscal policy plans would require the support of Congress and tariffs could introduce market uncertainty.

The next president will set the policy agenda on crypto, nominate key regulators, and drive broader economic policy decisions on taxes, spending, and tariffs. Former President Trump has enthusiastically embraced the digital assets industry, saying he wants to make the United States “the world capital for crypto and Bitcoin”[2]. He also announced that he will launch a crypto lending platform called World Liberty Financial, although details about the project remain limited.[3]

Vice President Harris has offered more supportive comments about digital assets recently, explaining her administration would “encourage innovative technologies like AI and digital assets, while protecting our consumers and investors”.[4] According to press reports, her campaign will also announce plans to “protect” crypto assets and to develop “a plan come up with rules for cryptocurrency and other digital assets”.[5]

However, the Harris campaign has offered fewer specifics, and it is worth noting that the current Biden/Harris administration has taken — as seen by certain market participants and commentators in the crypto industry — an adversarial approach to industry oversight, including for example by bringing a range of lawsuits, limiting access to traditional banking services, and vetoing bipartisan legislation.[6] Grayscale Research therefore believes that a Trump administration would be more likely to nominate regulators interested in supporting crypto industry innovation. [7]

The outlook for Bitcoin specifically is also likely to depend on the macro policy choices of the next administration (for more detail see Bitcoin and the Macro Policy Issues of Biden v Trump). Analysis by independent researchers suggests that both the Trump and Harris fiscal policy proposals would result in larger budget deficits — even though the federal deficit is already quite large.[8] Before incorporating the campaign’s stated plans, the Congressional Budget Office (CBO) projects that the federal deficit will average 6.2% of GDP over the next 10 years. According to the Penn Wharton Budget Model (PWBM), Vice President Harris’ proposal to expand the Child Tax Credit and other changes would increase the10-year average budget deficit to 6.5% of GDP, despite her intention to raise the corporate tax rate to 28%.[9] Meanwhile, PWBM analysis suggests that former President Trump’s plans to extend the 2017 tax cuts and reduce other tax rates would increase the 10-year average budget deficit to 7.8% of GDP (Exhibit 1).[10]

Grayscale Research believes that, all else equal, large budget deficits should be considered negative for the U.S. Dollar and positive for Bitcoin over the medium term.

Exhibit 1: Neither candidate plans to shrink the federal deficit

However, in practice, the market implications are uncertain. First, fiscal policy changes must go through Congress, and it is unclear which campaign proposals could actually become law—especially in a divided government scenario. Second, former President Trump also intends to sharply increase tariffs. Tariff increases tend to raise the value of the Dollar and could weigh on risky assets, especially if other countries retaliate.[11] Although tariffs do not directly affect Bitcoin, crypto asset valuations are correlated with broader markets, so tariff increases could therefore introduce downside risk to prices.

Senate

Polymarket Odds: Republican Control 78% / Democrat Control 22%

The upshot: While members of both parties have demonstrated support for certain aspects of crypto policy, Republican control may be considered a net-positive outcome for crypto, given the Senate’s key role in confirming regulator appointments.

Along with the House of Representatives, the Senate is responsible for passing any changes to fiscal policy[12] as well as any crypto-specific legislation. The Senate is also responsible for confirming presidential appointments, including for key regulators at the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the Federal Reserve Board. Because of the uncertain regulatory status of many crypto assets, Senate oversight of agency appointments may prove critical for the industry.

Crypto legislation taken up by the current Congress has been bipartisan, including the Digital Commodities Act from the Senate Agriculture Committee and stablecoin legislation from the Senate Banking Committee.[13] At the same time, Republican Senators have been more consistently supportive of the digital assets industry. For example, the crypto industry lobbying group Stand With Crypto[14] gives a grade of “A” on crypto issues to 39 of the 49 Republican senators, but only 6 of 51 Democratic senators.[15] Moreover, voting patterns point to more Republican support: in the Senate vote to repeal SEC Staff Accounting Bulletin (SAB) 121[16], 48 Republicans voted in favor and 12 Democrats voted in favor.

Democrats currently control the Senate, and therefore chair key committees, set priorities on legislation, and ultimately have the deciding vote on some presidential appointments. Given that Republicans have generally been more supportive of digital assets innovation, Grayscale Research believes that a change in control of the Senate could be a net-positive outcome for crypto markets — and arguably the most important election outcome for the industry, given the critical role of regulator oversight.

House of Representatives

Polymarket Odds: Republican Control 44% / Democrat Control 56%

The upshot: Control of the House will be critical for determining whether there is unified or divided government, which will partly determine whether the next president can achieve their stated goals for fiscal policy, and therefore the impact of the elections on broader financial markets.

Like the Senate, support of the House of Representatives will be required to pass any fiscal policy changes or crypto-specific legislation. Legislation considered during the current Congress has been bipartisan, but with greater support from Republicans. For example, for the FIT21[17] bill from the House Financial Services Committee, the 208 Republicans voting in favor were joined by 71 Democrats, notably including Former Speaker Pelosi and Democratic Whip Clark.

Control of the House will determine committee assignments and legislative priorities for the chamber, which could have bearing on crypto policy. But perhaps the most important implication will be whether one party controls both the White House and both chambers of Congress — "unified government” — or whether control is split between parties — “divided government.” Under divided government, changes to fiscal policy may be especially difficult to achieve.  

The Eight Scenarios

For the upcoming U.S. elections, there are three institutions in play (the White House, Senate, and House of Representatives) and two possible outcomes for each institution (control by Republicans or Democrats). There are therefore eight distinct possible scenarios, each with different implications for the digital assets industry. Exhibit 2 provides implied odds for each scenario from Polymarket.

Exhibit 2: According to prediction markets, the election is highly uncertain

Grayscale Research would highlight a few key points. First, among the four more likely scenarios, no one scenario clearly dominates — in other words, the post-election balance of power is still highly uncertain. Second, observers are split on whether we will have unified or divided government: the combined odds of a Democratic or Republican sweep are still close to 50%. Third, the only specific outcome with reasonably high odds, according to Polymarket, is Republican control of the Senate. As long as that holds, we would consider the election outcome to be moving in a favorable direction for crypto markets, given the key role the Senate plays in confirming presidential appointments.

Crypto is a Bipartisan Issue

At the constituent level crypto is a bipartisan issue. Results of our national surveys by The Harris Poll on behalf of Grayscale show that Bitcoin ownership and familiarity with crypto is higher among self-identified Democrats than Republicans, and Democrats have generally become more interested in crypto this year.[18] Moreover, any new crypto legislation will need to achieve a supermajority in the Senate, so will almost certainly require bipartisan support.

That being said, Grayscale Research would consider Republican control of the Senate to be a meaningful positive for the digital assets industry, given the Senate’s key role in confirming the president’s appointees for regulatory agencies. For this reason, current polling and the implied odds from prediction markets currently point to a favorable outcome for crypto markets.

However, the outlook for any crypto-specific legislation and/or possible fiscal policy changes from the next administration is more uncertain. In Grayscale Research’s view, the best outcome for the healthy development of the digital assets industry would be a continuation of the bipartisan work towards comprehensive legislation.

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Harris Poll Methodology

The survey was conducted online by The Harris Poll on behalf of Grayscale via its Harris On Demand omnibus product within the United States between September 4th and 6th, 2024 among 1,841 adults (aged 18 and over) who plan to vote in the 2024 presidential election. Data were weighted where necessary by age, gender, race/ethnicity, region, education, marital status, household size, household income, employment, and propensity to be online, to bring them in line with their actual proportions in the population. Respondents for this survey were selected from among those who have agreed to participate in our surveys. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.8 percentage points using a 95% confidence level.  This credible interval will be wider among subsets of the surveyed population of interest. All sample surveys and polls, whether or not they use probability sampling, are subject to other multiple sources of error which are most often not possible to quantify or estimate, including, but not limited to coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments.

[1] Grayscale takes no position as to the accuracy or reliability of polling data and implied odds from prediction markets like Polymarket. Throughout this piece, Grayscale uses data from Polymarket to suggest general directionality of potential election outcomes.

[2] Source: Barron’s.

[3] Source: NY Times.

[4] Source: Bloomberg.

[5] Source: NPR.

[6] See, for example,  WSJ, Unchained Crypto, Reuters, TechCrunch, Axios, Reuters.

[7] On regulation, former president Trump has said, for example, “The rules will be written by people who love your industry, not hate your industry.” Source: CNBC.

[8] This statement from the CBO sums up the current budget picture: “Over the 10-year projection period, primary deficits in CBO’s baseline average 2.5 percent of GDP. In the 62 years from 1947 to 2008, primary deficits exceeded 2.5 percent of GDP only twice. In the past 15 years, though, they have exceeded that percentage 10 times—in part because of legislation enacted in response to the 2007–2009 financial crisis and in the wake of the coronavirus pandemic that began in early 2020.” Source: CBO.

[9] PWBM estimates are based on the primary (before interest) deficit; Grayscale incorporated CBO estimates of interest expense before the campaign’s proposals to calculate the total deficit impact. Estimates of the budget impact of campaign proposals differs across sources, and figures presented here should be considered illustrative. For alternative estimates see, for example, Committee for a Responsible Federal Budget.

[10] PWBM estimates of the Trump proposals do not include the potential impact of tariffs on customs revenue. However, projections that do include tariff revenue, like those from the Committee for a Responsible Federal Budget, find a broadly comparable net impact on the deficit. Estimates of the revenue impact of Trump’s tariffs plans over a ten-year period, if maintained, range from roughly $2 trillion to $5 trillion. Source: Committee for a Responsible Federal Budget, Tax Policy Center, Tax Foundation.

[11] A variety of research has examined the impact of tariff increases on the US Dollar. See, for example, The multifaceted impact of US trade policy on financial markets and To What Extent Are Tariffs Offset By Exchange Rates. For the impact on risky assets see, for example, The Effect of the U.S.-China Trade War on U.S. Investment.

[12] Changing tariffs does not typically require Congressional approval.

[13] Specific bills are the Digital Commodities Consumer Protection Act of 2022 (S.4760) and the Lummis-Gillibrand Payment Stablecoin Act (S.4155).

[14] The Stand With Crypto Alliance is a 501(c)(4) nonprofit funded by donations.  Grayscale takes no position as to the accuracy or reliability of data from The Stand With Crypto Alliance. Throughout this piece, Grayscale uses data from The Stand With Crypto Alliance to suggest general directionality of where members of Congress stand with respect to crypto policy.

[15] Counting independent senators who caucus with Democrats.

[16] SAB 121 is a financial guideline requiring companies to report customer-held crypto as both assets and liabilities, affecting how they manage crypto custody services.

[17] Financial Innovation and Technology for the 21st Century Act (H.R.4763).

[18] Across the three waves of polling, 18% of self-identified Democrats said they owned Bitcoin, compared to 15% of Republicans. Similarly, 51% of Democrats said they were “very familiar” or “somewhat familiar” with crypto, compared to 45% of Republicans. Lastly, in the third wave of polling (September 4-6, 2024), 37% of Democrats said they have become moreopen to learning more about investing in crypto this year, compared to 30% of Republicans. Source: The Harris Poll.