“A free lunch opportunity to be a pro-crypto”: how crypto won the election and then the market

With crypto booming over the last month, we had Nat Eliason, the author of the bestselling crypto thriller “Crypto Confidential,” join us on the “Snacks Mix” podcast to discuss everything going on in the crypto markets. The following is the transcript of our conversation with Nat, lightly edited for clarity. You can listen below, as well as Spotify and Apple Podcasts.

Nia Warfield: I think we should start this out with everyone sharing a theory on why they think crypto is booming right now. Is it because Trump is truly the pro-crypto candidate? Is it FOMO? My personal theory is a mix of both, but Nat, what are your thoughts? I’m curious, and you’re the expert here.

Nat Eliason: I think it’s obviously timed with the election. Crypto prices started taking off as Trump’s Polymarket odds climbed on election night, even though we have yet to see any actual policy go into place. I think it’s more of a reaction to uncertainty reduction with the election ending. That being said, Trump ran a more vocal “pro-crypto” campaign than Kamala Harris and said he would replace the current SEC Chair, Gary Gensler, who’s been super anti-crypto. Also, an underdiscussed story is the role that the crypto super PAC, which spent more money than any other PAC in this election cycle, played: I believe they won 48 out of 48 races that they invested in.

Nia Warfield: That’s insane.

Nat Eliason: Yeah, it was a blowout success for a political action committee. Combine those factors with a postelection reduction in uncertainty, and I think people who were waiting on the sidelines felt comfortable to go risk-on.

Nia Warfield: Jack, what’s your theory?

Jack Raines: I want to circle back to the PAC stuff in a second because I think there’s a lot of interesting information to unpack there. But on the current crypto boom, I think a lot of it is vibes. I went to the crypto Consensus conference in Austin in May, and the one consistent opinion, shared by everyone there, was that Gary Gensler was the worst. There wasn’t a single Gary Gensler supporter there. Trump was adamant that he would get rid of Gensler his first day in office. My question, Nat, is why does everyone hate Gensler?

Nat Eliason: Crypto people feel betrayed because Gensler taught a class at MIT, that, if I’m remembering this correctly, covered blockchain technology and cryptocurrency. In those interviews, lectures, and discussions, he seemed pro-crypto, and he seemed to understand the industry deeply. When he took office, a lot of crypto folks were optimistic about having an SEC chair that understood the space.

But then he reneged on a lot of what he said when he was teaching those classes, and instead of creating clear legislation, he decided to essentially do nothing. In his tenure, his policy, for the most part, has been wait and see what people in crypto do and then sue them. Many crypto companies don’t necessarily want free rein. They just want clear rules. That’s why, over the last few years, we’ve seen many big crypto applications get started overseas: it was too risky to launch them in the US. Trump has said that he wants to make America the home of crypto innovation, and that’s very exciting to the industry.

Nia Warfield: Yeah, I think his exact quote was wanting to be the “crypto capital of the planet.”

Assuming Gensler is out, what does pro-crypto regulation look like? Some analysts have said that it could be as simple as cracking down on money laundering and financial crimes, which would generate higher trust and could encourage more investment in the space. In your opinion, what does that even look like?

Nat Eliason: Honestly, anything would be nice. Even just telling crypto companies, explicitly, what they can’t do would be helpful. Right now, there are not clear guidelines concerning who can launch a token, or whether a token is a security, a collectible, or some other category. Companies don’t want to risk creating unregistered securities, but there aren’t any guidelines covering how to prevent your token from being considered an unregistered security.

This creates a tax problem, too, because if you treat NFTs as collectibles, you treat them differently for tax planning than if you treat them as securities. Opaque regulation has driven the pseudonymous economy that we see in crypto. For example, a company might build a protocol and a project, but then they have to create a decentralized autonomous organization, or DAO, to launch a token. The DAO creates a layer of separation between the token and the company in case Gensler decides that you’re the company he’s sending a Wells notice this week. Any guidelines would be an improvement over the current setup.

Jack Raines: To pivot a bit: one of the funnier aspects of crypto is that, on one hand, you have this pro-innovation cohort that’s focused on building new technology. These are the people who created the first DAO, for example, and it seems in like every cycle, somebody comes up with a new version of crypto.

On the other hand, there’s a collection of people that are just trading whatever they think is funny and will go up. Everyone is talking about bitcoin gains this year, and it’s up more than 100% year to date. But dogecoin is up 260% in the last month. My take on this, other than “all cryptos go up at the same time,” is that Elon Musk and Vivek Ramaswamy are now running the department of government efficiency, acronym “DOGE.” Do you think there’s any correlation between Musk repeatedly tweeting about “DOGE” the government department and the market value of “DOGE” the cryptocurrency once again being worth more than Deutsche Bank?

Nat Eliason: It certainly doesn’t hurt, but we’ve seen this cycle play out before where bitcoin is the signal of whether we are in a risk-on crypto bull market or a bear market. Once bitcoin starts to break through its all-time highs and enters price discovery, like right now, the liquidity starts to trickle down to other things, and retail investors get interested in the other things. It’s almost so simple that you feel dumb believing in it, but if, during the last two cycles, bitcoin taking off resulted in dogecoin taking off, it isn’t a crazy assumption that in this cycle, now that bitcoin is hitting all-time highs, dogecoin could, too. People are just rerunning the playbook from last cycle.

Jack Raines: Let’s go back to the crypto super PAC. One super PAC, Fairshake, raised $170 on its own, and a total of $245 million was raised by crypto PACs and other groups. There was also a rating scale developed by Coinbase called the “Stand with Crypto Alliance” that determined which House and Senate races were the most important by rating the crypto friendliness of different candidates, helping these PACs allocate their money accordingly.

$40 million of that $245 million went to one race: backing Bernie Moreno, a low-profile Republican Ohio senatorial candidate who had founded a blockchain startup five years ago, over Sherrod Brown, an incumbent Ohio senator and Democrat that chaired the Senate Banking Committee. That’s so much money going to one space, and, in this instance, one race!

And the campaign strategies used by these PACs were interesting because they rarely talked about crypto. They would discuss “inflation” or “pro-American values.” I think it was very smart, right? Because the median voter in a lot of these counties, towns, and states might not care about crypto. In fact, they might not even know about crypto. So, if you’re pro-crypto and want to support a candidate, it makes a lot of sense to appeal to the non-crypto issues that other voters care about.

Nat Eliason: Oh yeah, the campaign strategy by these PACs was incredible. But there was another angle to the election that a lot of people missed:

There are a lot of single-issue crypto voters who were tired of politicians calling them criminals or saying they were participating in a “dark economy” or whatever. This rhetoric alienated them. Meanwhile being a “pro-crypto” candidate doesn’t really alienate many voters. For a lot of issues, you’re either for or against something, but with crypto, most people are either pro-crypto or they just don’t really care. There isn’t a massive “anti-crypto” constituency, so there was a free lunch opportunity to be a “pro-crypto” that didn’t exist with many, if any, other issues. It was remarkable how effective these PACs were at leveraging this point to get their candidates in office.

Nia Warfield: That’s a great point, and I think it’s spot-on in hindsight. So now that the election is over, do you think that the crypto community actually trusts Trump? Back in 2019, he tweeted, “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior including drug trade other legal activity,” etc.

Do you think the current bull market is more enthusiasm about regulation, or is there actually a belief that when Trump is back in office, he’ll build on this momentum and actually do something about it?

Nat Eliason: I’d say the industry generally trusts him for a couple of reasons. First, he went to Bitcoin Miami and spoke there, which was a big deal.

It’s hard to overstate how new it is for a major political candidate to simply not be negative about crypto, right? Saying nothing would have been an improvement, but to go beyond that and to say positive things about the industry, to go to Bitcoin Miami, to have the Winklevi twins at some of your rallies, those are all huge. If you go back four years, few senators or representatives would say anything positive about crypto. Now a lot of people in government are crypto supporters.

I think Trump realized that the only way he was going to win the election was if he brought in new voters who he didn’t have before, and he realized the crypto community was an important group. One big benefit of the crypto community was fundraising: they had hundreds of millions of dollars to throw at the election. The Winklevi twins have said that they’ve talked to Trump about it a lot, and they reported that he seems to at least understand crypto and be curious about it and open to it. If true industry insiders are vouching for him, that goes a long way.

Nia Warfield: Based on what we’ve seen in the past, how long do you think that this boom is going to last?

Nat Eliason: I’ll give a couple of theories.

The first argument is that this is the postelection, preinauguration pump, which has happened in the last two election cycles. Simply removing uncertainty by having a candidate chosen has created excitement and froth in the crypto markets, and it runs up to inauguration day, and then things could correct from there.

The second argument is that this is the next true crypto wave, in which case you would probably see a four- to eight-month mania as things getting increasingly stupid until we hit a blow-off top point. Last time, that point was Elon Musk on Saturday Night Live talking about doge. So there’s going to be some new ridiculous thing that happens, where we hit this peak mania, and then we would see a correction.

After a correction begins, the market goes from player vs. environment, or PVE, to player vs. player, or PVP. Right now, we’re in PVE. Everything is going up, and all you have to do is have some skin in the game, right? You don’t have to be strategic. If you were just holding bitcoin through the last bear market, you can keep sitting and watching it, assuming this is going to keep playing out. Once we hit peak mania, prices correct and retail money that bought the top gets burned, and then things start to get more competitive.

Don’t get me wrong, there is still a lot more money to be made at that point, but the total crypto market cap might go sideways for a year like it did in 2022. But a lot can happen in these sideways markets. That’s when NFTs got huge, and you had Olympus, and ConstitutionDAO, and these other crazy DeFi projects. After bitcoin and Ethereum had come down from their peaks, people were chasing other opportunities.

Nia Warfield: Well, Nat, this has been super, super interesting. You will definitely have to come back and join us. But in the meantime, everyone should go and check out your book, “Crypto Confidential.”

You can hear our full conversation, as well as the rest of the podcast by clicking below or heading to Spotify and Apple Podcasts.

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