Interpreting the Crypto Market Post-Election: The Golden Age is Coming
SEC to Relax SAB 121 Regulation, Crypto Market Sees Influx of Big Banks
Original Article Title: Entering the Digital Golden Era
Original Article Author: Alex Thorn, Research Director
Original Article Translation: zhouzhou, BlockBeats
Editor's Note: Bitcoin's price has reached a new high, driven by ETF inflows, a cyclical upward trend, and mild pullback support. The presence of short gamma positions in the options market may exacerbate volatility, but current volatility is limited, and the market is not overheated. Changes in global M2 money supply could also affect Bitcoin, especially in the context of enhanced hedging properties. If the Trump administration takes office, relaxed regulations will encourage increased investment from traditional financial institutions, accelerating the maturation of crypto assets, potentially leading Bitcoin to break new highs in the next 12-18 months.
The following is the original content (slightly reorganized for ease of reading comprehension):
The digital asset industry is on the brink of a golden age. The U.S. cryptocurrency industry may see a renewed regulatory framework, with an increasing number of supporters in both houses of Congress and the White House.
The industry has demonstrated its political clout, sending a strong warning to hostile forces, which will have a profound impact on the entire political landscape. The strong headwinds that have hindered the industry's development over the past four years have gradually weakened, reducing legal costs, and now the crypto industry is sailing against the wind in the world's largest capital market.
About Tuesday Night
President-elect Donald Trump has made history—becoming the second president to win non-consecutive terms, with Grover Cleveland being the only former president to achieve this feat by defeating Benjamin Harrison in 1892 for a second term. At that time, the anti-tariff, gold standard-supporting Democrat returned to power; today, the tariff-supporting, Bitcoin-supporting Republican has won a non-consecutive term in 2024, showing the often astonishing similarities in history.
Trump's victory is also historically significant in modern times, as his electoral votes will increase to over 310, up from 306 in 2016. Additionally, Trump becomes the first Republican to win the national popular vote majority since 2004 when Bush Jr. won.
He not only reclaimed the "Blue Wall" states of Pennsylvania, Michigan, and Wisconsin but also possibly won Nevada, which Hillary won in 2016. In Florida, Trump's vote share is as high as 13%, largely due to demographic shifts in the state in recent election cycles.
The following is a heatmap created by Bloomberg, showing the voting results of over 95% of each county and comparing the support rate changes of the two-party presidential candidates from 2020 to 2024, with a significant increase in the red areas.
Source: Bloomberg
The Senate has shifted to Republican control, with the Republicans expected to hold 54 seats. The outcome of the House may take longer to clarify, but the Republicans have a slight advantage and are likely to maintain control of the House.
Some other key points of the election:
· Cryptocurrency has demonstrated its political influence: In addition to actively pushing for President Trump's commitment to support the cryptocurrency agenda, the industry has also gained widespread support in both the House and the Senate. The most notable victory came from Bernie Moreno (Republican) in Ohio, defeating the incumbent Senate Banking Committee Chair Sherrod Brown (Democrat). The Cryptocurrency Political Action Committee invested tens of millions of dollars in defeating Brown's campaign, sending a strong signal to the political sphere that opposing cryptocurrency is a politically untenable position.
· Trump enters his second presidential term: Presidents in their second term often tackle more complex and challenging issues, aiming to create their own political legacy. Trump's margin of victory is also larger than in 2016, and he has garnered support from perhaps the most diverse Republican voter coalition in decades. This enhances the possibility of him driving significant reforms, potentially including a major modernization of the financial system.
Trump's team is very supportive of the digital asset industry: Trump's core team strongly supports digital assets, with many in the team openly stating their ownership of Bitcoin. Vice President-elect J.D. Vance revealed his Bitcoin holdings, Vivek Ramaswamy openly backed the industry during the campaign cycle, and RFK Jr. has been a long-time supporter of Bitcoin, offering thoughtful support to the industry for at least two years.
Transition Team Co-Chair Howard Lutnick stated that he and other executives at Cantor Fitzgerald have significant Bitcoin holdings (and Cantor Bank provides banking services to Tether), in addition to Trump himself issuing an NFT and launching his decentralized finance protocol, World Liberty Financial. The support of the team, family, and donors for cryptocurrency increases the likelihood of Trump fulfilling his campaign promises to the industry.
Washington Expected Policy
Let's look ahead at the possible development of crypto policy:
Banking Regulators: Trump will immediately appoint new acting heads of the Office of the Comptroller of the Currency (OCC) and acting chair of the Federal Deposit Insurance Corporation (FDIC). These agencies have regulatory authority over banks and thrifts, perhaps within days, the banking regulators will issue guidance clarifying the prohibition of discriminatory practices against specific industries (i.e., "2.0 bottleneck"), they can revoke existing interpretive guidance or letters unfavorable to the industry, such as the January 3, 2023, joint letter.
In the coming weeks or months, the OCC may issue guidance allowing banks to custody digital assets, use, operate, and interact with public blockchains and stablecoins. (Recall that former acting Comptroller Brian Brooks under Trump issued similar interpretive letters in 2020.)
Market Regulators: Trump will elevate one of the current Commissioners of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to acting chair. While Trump promised to "fire Gary Gensler," most constitutional scholars believe the President cannot fire a confirmed independent agency member.
However, the President can immediately designate a current Commissioner as acting chair. Following such personnel changes, some cryptocurrency enforcement activities may pause, some lawsuits will be stayed or withdrawn, specific projects may receive no-action letters, and the industry and regulators will have an opportunity to discuss a reasonable path forward.
Comprehensive rulemaking will take longer, but the crypto industry is expected to quickly receive exemptive relief, primarily including loosening the SEC's definitions of "security" and "exchange." The CFTC's stance is similar, but without market structure legislation providing clear jurisdiction between the SEC and CFTC, the chairs of both market regulators must coordinate closely to develop progressive policies.
Congressional Legislation: The biggest crypto policy agenda in Congress includes market structure (clarifying the regulatory status of digital assets and supervisory agencies) and stablecoins (legalization and licensing of stablecoin issuance). In May of this year, the "Financial Innovation Act of 2021" passed the House with bipartisan support and will serve as the basis for future market structure legislation. Currently, Democrats and Republicans have minimal differences in stablecoin legislation, with the main points of contention being
1. Whether only national banks can issue or if states also have a pathway.
2. Which entity or entities will assume regulatory oversight and supervision of issuers.
It's worth noting that if the Republicans control the House, it is expected that these bills may not move quickly in 2025. A unified Republican Congress may use the first 100 days before 2025 to focus on tax reform, trade, and other issues, pushing through priority items via budget and reconciliation.
This does not mean that cryptocurrency legislation is impossible to advance in the next Congress, but in a unified Congress, its priority is expected to be relatively lower — this requires close coordination between Congress and regulatory agencies on cryptocurrency policy. Our basic expectation is that cryptocurrency legislation will be delayed until the latter part of the 119th Congress, at which time cabinet officials and independent regulatory agencies can establish a foothold before working with Congress.
Energy Policy: Trump's presidency, especially if the Republican Party simultaneously controls both houses of Congress, will be very favorable for domestic energy and power production. This is good news for Bitcoin miners, data centers, and any company or energy producer with significant power resources.
Impact on Market Participants
The easing of regulatory headwinds, specific interpretive letters, no-action letters, or regulatory guidance could significantly increase U.S. institutional investors' access to cryptocurrency.
In September, the SEC relaxed the terms applicable to SAB 121 or directly repealed that guidance, paving the way for the world's largest custody banks to enter the cryptocurrency market. BNY Mellon received an exemption because its primary prudential regulator (NYDFS) did not object to its request for exemption, but the OCC is the primary prudential regulator for nationally chartered banks like Citi and JPMorgan. Given the OCC's likely major shift in attitude toward banks directly interacting with cryptocurrency, these large banks will also gradually have more opportunities for deeper involvement.
Further institutionalization will provide more financing options for crypto assets, making spot cryptocurrencies more easily accessible through existing institutional trading platforms and relationships, while overall enhancing the maturity of the institutional crypto market.
Relaxing SEC standards for the Howey test, or allowing more "crypto asset securities" to be traded within broker/dealers, will allow more companies to enter the trading arena, including potential traditional financial institutions such as banks, exchanges, or broker/dealers. Additionally, a relaxation of the SEC's Howey standard may lead to more spot-based cryptocurrency ETFs being listed in the U.S.
A clear stance and lenient policies from regulatory agencies will enable traditional financial services companies and investors to operate on-chain for the first time, bringing new revenue and other strategic opportunities.
Expanded access to public blockchains may also innovate transaction efficiency, transparency, issuance, and other aspects of finance. Depending on the regulatory stance and any enacted legislation, the integration of traditional finance with decentralized finance may become a reality.
Likewise, depending on the SEC's stance on the Howey test and token disclosure requirements, we may see the emergence of new types of tokens, and there may even be equity security tokens, with existing tokens potentially adding more equity-like features to enhance their value proposition.
An expanded and enhanced asset ecosystem will support the liquidity crypto hedge fund industry, and the maturation and expansion of investment targets will provide greater investment opportunities for this industry. Improved token disclosure and issuance capabilities will challenge or even disrupt the existing "SAFT to low liquidity, high FDV" model, making VC capital no longer superior to liquidity assets.
In the venture capital field, the crypto company IPO market may see a more meaningful opening, ultimately providing an exit path for investment returns. Currently, apart from a few SPACs, the only publicly listed crypto startup is Coinbase. We estimate that, if conditions are right and regulatory agencies are open-minded, the U.S. could see dozens of crypto companies looking to go public.
Bitcoin Market Analysis
On Monday, November 4, Bitcoin dropped to a low of $66,700 but has since risen by 15%, reaching a new all-time high. On November 5, with increasing probability of a Trump victory, Bitcoin quickly surged to a new high and has been hovering in the $75,000-76,000 range.
Despite significant market volatility—a 15% increase since Monday and a 26% increase since October 1—fundamentally, the market has not shown signs of overheating. As Bitcoin rose on election news, the "Coinbase Premium" saw a significant recovery on Tuesday evening, turning positive for the first time in at least a month.
The Bitcoin ETF has performed strongly, hitting a record net inflow on Thursday, November 7, attracting up to $1.375 billion in funds, driving Bitcoin to new highs. This data surpassed the previous inflow record of $1 billion on March 12, 2024.
Bitcoin Cycles
Looking back at history, Bitcoin's current trend is largely in line with the previous two bull market cycles. From the respective cycle lows (2011: $2, 2015: $152, 2018: $3,122, 2022: $15,460), Bitcoin's trajectory matches that of the 2017 bull run and is only slightly behind the pace of the 2021 bull run.
Looking back at historical bull market pullbacks, the 2024 retracement was milder compared to the pullbacks in the 2021 and 2017 bull markets.
Futures and Funding Rate
Despite the rise in open interest of cryptocurrency exchange futures contracts, reaching a new yearly high, the funding rate has remained relatively stable, indicating that this volatility is mainly being driven by the spot market.
Source: Velo.xyz
Bitcoin Options Market
Bitcoin options traders are holding a net short gamma position between $54,000 and $84,000, which will amplify any price swings. In simple terms, when traders hold a short gamma position, they typically hedge by buying spot when the price rises or selling spot when the price falls.
This effect can accelerate price movements and increase market volatility. Conversely, when traders hold a net long gamma position, they operate in the opposite manner: selling on price rallies and buying on price drops, thus reducing volatility.
Our analysis indicates that the current peak of short gamma is at $70,000, so as the Bitcoin price rises, this impact is diminishing. It is worth noting that many investors holding call options with high strike prices are already in a profitable position, so they may choose to roll their positions up to higher strike prices, pushing the short gamma position to a higher strike range.
The chart below illustrates our view of the net trader gamma positions for all Bitcoin options expiration dates from November 7, 2023, to September 26, 2025.
Bitcoin Fundamentals
The Realized HODL Ratio is an indicator that measures the ratio between the 1-week and 1-2 year realized market capitalization HODL bands (i.e., the realized value of Bitcoin that has transacted within these time frames).
A higher ratio usually indicates an overheated market, with the peak often coinciding with the market top. In 2024, RHODL's ranging behavior more closely resembles the 2019-2020 consolidation phase rather than any market top activity, indicating that Bitcoin still has upward potential in the near and medium term.
The MVRV Z-Score is the ratio of market value to realized value, as well as the standard deviation of the market value, used to help identify the discrepancy between asset trading value and overall cost basis. Historically, this indicator has been very effective in identifying market tops. The current value suggests that Bitcoin's price has not yet approached overheated or top territory.
Bitcoin and Global M2
Bitcoin has historically reacted to changes in global money supply. Although this correlation is not unique to Bitcoin, it is still worth noting, especially if Bitcoin starts to be used more as a hedge asset, as Larry Fink has mentioned.
Outlook
The arrival of the Trump administration, along with a strong Republican Senate capable of confirming its government department appointments, may bring welcome news of regulatory relaxation to the U.S. cryptocurrency industry. We expect that some form of exemption relief will be introduced soon, while a more robust supportive regulatory framework will take more time to materialize.
A relaxed regulatory enforcement environment, coupled with progressive policy thinking, will pave the way for traditional financial services companies and institutional investors to more deeply engage with this asset class. This will challenge the barriers of existing crypto infrastructure participants but will also broadly support the expansion and maturation of this asset class. In this environment, we anticipate that Bitcoin and other digital assets will trade at levels far above the current all-time highs over the next 12 to 18 months.
Original article link: Original Article
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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