Bitcoin experienced a new rally after former US President Donald Trump’s speech in support of cryptocurrencies. This could reignite concerns over European Union (EU) regulations on the controversial market.
The Republican candidate for president of the United States, Donald Trumpgave a speech to cryptocurrency advocates at the Bitcoin conference 2024. The former US president promised to turn his country into “the crypto capital of the planet and the bitcoin superpower of the world.”
Positioning himself as an example of contrast with the Biden Administration and the Democratic candidate Kamala Harris, Trump promised to create a “strategic reserve” of bitcoin for the US Government.
He also promised to remove SEC Chairman Gary Gensler if elected and “appoint an SEC Chairman who will build the future, not block it.” Last week, Trump became the first presidential candidate to accept crypto donations and raised 4 million dollars (3.69 million euros) in cryptocurrencies for his campaign.
While Trump’s endorsement of cryptocurrencies may attract voters who support digital tokens, the vigorous pro-cryptocurrency campaign could bring new regulatory risks for European policymakers. The monopolistic position of dollar-dominated digital tokens may also pose a threat to the world’s second-largest fiat reserve currency, the euro.
Cryptocurrency resurgence
Cryptocurrency markets experienced a resurgence this year, driven by the trajectory of the central banks’ expansionary monetary policies. The bitcoin halving and the SEC’s approval of bitcoin spot ETFs (‘Exchange Traded Funds’) also caused a bullish momentum of these digital tokens.
Since Biden dropped out of the presidential race earlier this month, bitcoin has seen a new rebound Due to the growing speculation about a Trump victory in the november elections. The largest cryptocurrency, bitcoin, rose more than 13% since last month to exceed $68,700 (63,244 euros) on Monday, only 6% of its all-time high reached in March 2024.
Trump’s promises at the Bitcoin 2024 conference on Saturday could serve as catalyst for further cryptocurrency boom if he becomes the next US president. This potential change may lead European politicians to reevaluate the current regulatory regime.
The current EU regulatory regime
Over the last decade, cryptocurrencies and digital assets have seen a significant growth in popularity and adoption. This rapid expansion has created the need for regulatory frameworks that guarantee market stability, investor protection and fraud prevention. The rise of Initial Coin Offerings (ICOs), security tokens and stablecoins has highlighted both the potential for innovation and the associated risks within the financial system.
In September 2020, the European Comission presented the Digital Finance Package, aimed at ensuring that the EU embraces digital finance while mitigating risks. The Markets in Crypto Assets Regulation (MiCA) was introduced as part of this package to regulate cryptocurrencies and digital assets. However the European Parliament and the Council have adopted MiCA in stages and it will not come into force until June 2023, with partial implementation starting in June and full implementation planned for December this year.
And important risk that cryptocurrencies pose is their possible use for money laundering and terrorist financing due to the decentralized nature of the transactions. From the Russian aggression against Ukrainecryptocurrencies have been used not only to support Ukraine, but also to fund Russia’s military efforts.
The head of sanctions at Chainalysis noted that “the Russian entities “have turned to cryptocurrencies under heavy pressure from international sanctions, using them for private militia group fundraising, ongoing ransomware attacks, and sanctions evasion attempts.”
A potential threat to the euro
Some EU regulators are concerned that the dominance of dollar-pegged stablecoins could pose a threat to the euro. Most stablecoins are pegged to the US dollar, which helps maintain their price stability over time.
Cryptocurrency traders often hold ‘stablecoins’ on exchanges as a means of trading between different cryptocurrencies. This reflects the dollar dominance in commodity marketswhere assets such as gold, silver, copper and crude oil are also quoted in dollars.
However, to support these stablecoins, a crypto exchange or stablecoin company must hold a corresponding amount of US dollars in reserve. As demand for stablecoins increases, it tends to support the US dollar while weakening the euro. A significant increase in the importance of bitcoin in the US could lead to greater issuance of stablecoins, which could exert a additional pressure on other currenciesincluding the euro.
