As we edge closer to the 2025 presidential election, experts foresee that a Donald Trump-led administration could breathe new life into the Ethereum ecosystem. Some analysts are even calling this potential political shift a “blitzkrieg” of revitalization for the cryptocurrency market.
Ethereum’s Recent Challenges
Ethereum’s Ether (ETH) has experienced a challenging year and a half, struggling to keep up with Bitcoin (BTC) and other emerging layer-1 coins like Solana (SOL) and Sui (SUI). While ETH saw an increase of 88%, Solana skyrocketed by a staggering 1,040%, and SUI posted a 448% rise during the same timeframe.
Analysts point out that ETH fell into the background in 2024, eclipsed by Bitcoin’s surge in institutional interest and Solana’s appeal to retail investors. Matt Hougan, Chief Investment Officer at Bitwise, explained how Ether was sidelined amidst the competition’s allure.
However, many cryptocurrency experts believe that Trump’s return to the presidency, along with anticipated supportive policies from key regulatory bodies, could lead to a substantial turnaround for Ether in the marketplace. Trump’s family has already ventured into decentralized finance (DeFi) with their project, World Liberty Financial, which operates on the Ethereum network.
Addressing Crypto’s Financial Nihilism
Ethereum’s value has been undermined by increased regulatory scrutiny over alleged securities violations associated with many projects in its ecosystem, such as Uniswap, ConsenSys, Lido, and Rocket Pool, while some dubious memecoin ventures have largely avoided SEC scrutiny.
Moreover, a growing sense of disillusionment among crypto supporters has taken hold, largely because of negative experiences with venture capitalists during the harsh bear market. This sentiment has led many to chase speculative memecoins and assets that offer little real utility. Travis Kling, CEO of Ikigai Asset Management, has labeled this attitude as “financial nihilism,” where excitement supersedes fundamental value.
In a thought-provoking essay from March, Kling explored how this financial nihilism aligns with populist sentiments—a reflection of widespread discontent with the current financial system, leading some to seek alternative investments, including cryptocurrencies like SHIB or even backing Trump.
Conversely, Ethereum is predominantly viewed through the lens of its solid fundamentals and practical applications. Supporters argue that the Ethereum network, along with its layer 2 solutions, embodies the future of programmable digital finance, facilitating smart contracts and decentralized transactions.
Trump’s SEC Reforms: A Push for DeFi?
Saul Rejwan, managing partner at Masterkey, believes that Trump’s crypto-friendly stance may alleviate the prevailing financial nihilism, encouraging regulators to support legitimate crypto initiatives instead of adopting punitive measures.
On December 4, 2024, Trump nominated Paul Atkins, a pro-crypto businessman and former SEC Commissioner, to take over the SEC after Gary Gensler’s resignation on January 20. This change would likely result in the departure of three Democratic commissioners, including Jaime Lizarraga and crypto-skeptic Caroline Crenshaw, who may not receive renomination.
With speculation about a Republican majority emerging, possibilities arise for four crypto-friendly commissioners to be appointed if Trump chooses to break from the traditional regulatory mold.
Rejwan emphasized that sectors like DeFi and decentralized physical infrastructure could flourish in a more supportive regulatory atmosphere, fostering renewed interest from institutional investors as barriers to entry diminish.
He criticized the Biden administration’s SEC, under Gensler’s leadership, as notoriously antagonistic toward DeFi, particularly after recent actions against Uniswap.
The SEC’s proposed amendments aim to broaden the definition of an exchange under the 1934 Exchange Act to encompass cryptocurrency market participants operating within DeFi.
Anoop Nannra, CEO of Trugard Labs, is optimistic about a dramatic shift in the SEC’s enforcement strategies, suggesting that crypto assets may eventually be classified as property under new directives from a Trump-led administration. Nannra shared insights from Trump’s associates, highlighting their commitment to property rights, which could influence the Republican Party’s approach to cryptocurrencies.
Expectations are growing that the CFTC will adopt a more forward-thinking stance on digital assets, fostering enhanced communication between the SEC and CFTC moving forward.
Observers contend that the Financial Innovation and Technology for the 21st Century Act (FIT21) will be pivotal in aligning the regulatory approaches of the SEC and CFTC regarding cryptocurrencies.
Passed by the House in May, FIT21 sought to create a federal framework for digital asset regulation, reduce the SEC’s influence over crypto, and hand over the oversight of spot crypto markets to the CFTC.
As the CFTC has classified Ether as a commodity, initial assessments indicated that FIT21 could significantly improve Ethereum’s regulatory prospects.
However, with the impending changes in governance, questions have arisen about whether FIT21’s provisions will remain necessary or desirable in an improved regulatory environment for crypto.
Legal experts from Brownstein observed recently that despite appearing stalled, FIT21 might lay the groundwork for future legislative efforts in the new Congress.
Regardless of its fate, there are reports that Trump may assign the CFTC regulatory authority over crypto markets, potentially categorizing most digital assets as commodities if they meet certain criteria.
If the CFTC takes the lead, it could represent a considerable win for the crypto industry, which has long preferred the CFTC’s more lenient regulatory approach.
Hester Peirce, a Securities and Exchange Commissioner, hinted that the new administration might reconsider previous rulings regarding crypto ETFs, especially those blocking in-kind redemptions and exploring the possibility of incorporating staking for Ether ETFs.
If the balance of commissioners shifts in favor of a more positive outlook, we might see regulatory approvals become more accessible. Several ETF issuers, including Fidelity, 21Shares, and Franklin Templeton, have expressed interest in integrating staking into their proposals, which currently yields around 3.1% annually.
Analysts anticipate that under a supportive SEC during Trump’s second term, ETH staking yields could be approved, with potential increases to 4% or even 5% as network activity ramps up.
As interest rates are expected to decline, the allure of ETH’s yield in ETFs may significantly enhance Ether’s attractiveness as an investment, providing asset managers with a competitive edge.
In conclusion, while the future regulatory landscape remains unpredictable, the anticipated reshaping of cryptocurrency oversight under Trump’s administration offers numerous possibilities for the Ethereum ecosystem, positioning it for a potentially brighter future.
Source: Cointelegraph
