Cryptocurrency is booming again. The price of Bitcoin crossed the $100,000 threshold — a jump of more than 40% since the election of Donald Trump. The rise is tied to beliefs that Trump’s administration may ease regulations and establish a more crypto-friendly policy framework. While some welcome this move as a step toward clarity and growth, others criticize it as an unnecessary government expansion.
This week, the Trump administration named former PayPal chief operations officer David Sacks as “White House A.I. & Crypto Czar.” Considered an early advocate of cryptocurrencies, Sacks has been an advocate for blockchain technology and digital asset advancement, contrasting the Biden administration’s enforcement-led approach.
USC experts are available to talk about cryptocurrency, Bitcoin and regulation.
Cryptocurrency regulation policies may change under the return of Trump: What to expect
“To the extent that cryptocurrency is being used to avoid regulations or taxes, it will lose its comparative advantage relative to more traditional financial products. Cryptocurrency would then have to compete on efficiency, speed and cost,” says Michael Simkovic, professor of law and accounting at USC Gould School of Law.
“The new administration might replace Gary Gensler at the SEC, who has brought lawsuits against crypto firms for allegedly violating securities laws. A republican administration would likely be less inclined to regulate crypto except in cases implicating national security.”
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Understanding cryptocurrency’s volatility: What drives it
“Cryptocurrencies are said to be money, but they have none of the traditional characteristics associated with money. Instead, most cryptocurrencies (asset-backed cryptos are the exception) are more similar to collectables with little intrinsic value. They derive their value from their scarcity and from shared expectations that they will continue to be valuable in the future,” says Larry Harris, the chair in finance for USC Marshall.
“Such expectations are quite unstable, which is the cause of extreme cryptocurrency price volatility. Investors whose investment returns depend on other investors will be disappointed when new investors fail to materialize or current investors lose interest.”
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The difference between cryptocurrency and Bitcoin
“Crypto and Bitcoin should be separated when discussing this field. Bitcoin is the result of decades of computer science and applied cryptography research to find a decentralized electronic cash. Cryptocurrencies that are not bitcoin are technology projects, and it’s my opinion and backed by the empirical study that only bitcoin qualifies as a global macroeconomic asset class in and of itself,” says Nik Bhatia, adjunct professor of finance and business economics and founder of The Bitcoin Layer research firm.
“The rise of bitcoin over the past 15 years is due to an innovation that cannot be recreated: decentralized electronic cash. In many ways, the term “digital gold” best describes this digital asset that has an algorithmically limited supply function. If bitcoin (currently less than $2 trillion) were to reach the market size of gold ($17 trillion), it would imply a price of around $800,000 for 1 BTC. Bitcoin is the most volatile major asset class to ever exist. It exhibits extreme cyclicality, experiencing large bull-market runs every four years on average.”
“Blockchain technology that underpins Bitcoin has also spawned many other cryptocurrencies and fintech projects. Regulatory frameworks are still catching up to the technological implementations in such projects which often prioritize privacy and anonymity,” says Nitin Vasant Kale, professor of technology and applied computing practice at USC Viterbi School of Engineering.
