Trump’s Overtures to US Crypto Sector Put Global Hubs on Alert

(Bloomberg) — Cryptocurrency hubs such as Hong Kong, Singapore and Dubai are facing a tougher outlook as a brighter U.S. political climate for digital assets draws the attention of companies and investors.

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Despite a sell-off in crypto markets this month, optimism in the industry that the regulatory tide is turning in the U.S. remains high. Republican presidential candidate Donald Trump has been courting the sector in search of donations and votes, promising to make the U.S. the “crypto capital of the planet,” in part by removing Securities and Exchange Commission Chairman Gary Gensler, who has been cracking down on digital asset companies for violating regulations.

Democratic Party nominee Kamala Harris has yet to take a stance on cryptocurrency, but there are signs that her advisers are looking to reestablish ties with the industry, the Financial Times reported.

These trends suggest that the crypto center of gravity is tilting more toward the U.S., a shift that began this year with the successful launch of the country’s first spot-Bitcoin and Ether exchange-traded funds. Those products now face their first major test after a sharp sell-off in crypto assets that peaked on Monday when Bitcoin fell more than 16%.

Venture capitalists are already considering further investments in the US and companies are evaluating staff transfers.

Capital Flows

“Due to the hostile regulatory environment in the U.S., the availability of opportunities has shifted offshore over the last few years,” said Cosmo Jiang, portfolio manager at investment firm Pantera Capital. “As the U.S. continues to move forward and that shifts back, our capital allocation will also shift back.”

While Trump’s pro-crypto stance is a complete turnaround (he previously called the industry a “fraud”), the overall US environment suggests that SEC pressure is at its peak. Countries like Hong Kong, Singapore, Dubai, and European nations may have to work harder to attract investment in digital asset hubs.

London-based cryptocurrency custodian Copper Technologies Ltd. is considering refocusing on the U.S. market in the event of a Trump victory, according to a source familiar with the matter who was not authorized to speak publicly.

Copper opened an office in New York in 2021 but pulled out of the U.S. the following year when digital asset prices slumped. “I would be surprised to hear that a digital asset firm is not looking at the U.S. as a growth opportunity,” Copper founder Dmitry Tokarev said in a statement.

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Bitcoin ETFs

U.S. Bitcoin ETFs listed in January have attracted about $19.4 billion in net inflows to date, part of a record-breaking start for a new category of funds. The dollar, which ceded its role as the most traded currency against cryptocurrencies to the South Korean won in the first quarter, returned to its peak in May, accounting for more than 50% of global volumes, according to research firm Kaiko.

This was the result of a major transformation since last year, when both trading volumes and companies migrated overseas in the face of a series of sanctions actions by the US following the collapse of the fraudulent FTX cryptocurrency exchange in 2022.

Kelvin Koh, co-founder and chief investment officer of Spartan Capital, which operates from Hong Kong and Singapore, said a clearer regulatory regime in the United States would mean “a lot more capital” flowing into the world’s largest economy.

While it remains unclear what kind of crypto landscape will emerge following the November presidential election in the United States, optimists are expecting a friendlier environment that will allow cryptocurrencies to proliferate globally, giving all jurisdictions a bigger slice of the pie, even if America gets a bigger slice.

Wave Effects

Given the size of the U.S. capital markets, it’s likely other jurisdictions will follow their regulators’ lead, so a supportive framework could have a “broader impact,” said Richard Galvin, founding partner at Digital Asset Capital Management.

The ripple effects of Trump’s rhetoric are already evident. In Hong Kong, Council Member of the Legislative Assembly Johnny Ng said he would discuss the feasibility of “incorporating Bitcoin into financial reserves with different stakeholders” after the former president announced plans for a U.S. Bitcoin stockpile in a speech on July 27.

Crypto entrepreneur Justin Sun, creator of the Tron blockchain, emphasized that the US already has a grasp on Bitcoin mining, the energy-intensive process that secures the blockchain. The US took the lead in mining after a crypto ban in China in 2021 suppressed such activity.

Despite the ban, Sun argued that China does not want to be left behind in the overall development of digital assets. He predicted competition between Washington and Beijing that would “greatly benefit” the development of the crypto industry.

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