With the Democrat-Republican debate over decentralized finance raging, what message does Trump’s silence send to the crypto community? Is it a sign of disinterest or strategic neutrality?
DeFi gets the spotlight
On September 10, the first congressional hearing on decentralized finance was held, marking a significant moment in the development of this technology.
Titled “Decoding DeFi: Analyzing the Future of Decentralized Finance,” the session was moderated by Rep. French Hill and lasted for approximately two and a half hours.
US lawmakers have met to discuss the potential benefits and risks that DeFi could pose to the financial system.
The hearing revealed a clear divide among lawmakers. Republicans, led by Hill, were optimistic about DeFi’s potential to eliminate middlemen and transform financial markets.
As Hill puts it, “By replacing intermediaries with autonomous, self-executing code, decentralized finance could change the way financial markets and transactions are currently structured and managed.”
Meanwhile, Democratic lawmakers have raised concerns, focusing on DeFi’s potential misuse, particularly its role in enabling criminal activity. While Republicans have called for tighter regulation, Democrats have called for stricter oversight, citing the risk of illicit use.
What does this hearing mean for the future of DeFi and the broader crypto market, especially as the US presidential election approaches?
Conflict of Views on DeFi
The hearing itself turned into a battleground of opinions, with sharp differences in how lawmakers viewed DeFi. Subcommittee Chair Hill began the discussion by focusing on the opportunities that DeFi and tokenization could provide for finance.
But not everyone saw it that way. Rep. Brad Sherman, a Democrat from California, took a more critical approach. He expressed concerns that DeFi could be little more than a tool for tax evasion, especially for the very wealthy.
What we have here is an effort to free billionaires from income tax…and every time a billionaire succeeds in cheating on his taxes, a member of the Freedom Caucus earns his wings.
In response to Sherman’s concerns, Peter Van Valkenburgh, director of research at the Coin Center, offered a counterargument. He acknowledged that tax evasion is a crime, but pointed out that DeFi’s transparent, decentralized ledger makes it harder for bad actors to hide their activities.
Tax evasion is a crime and must be fought with all force. But I do not believe that tax evasion and its existence justify a financial system subject to complete monitoring and control.
Van Valkenburg also pointed to the confusion surrounding tax guidance from the IRS. He claimed that many crypto users want to comply with tax laws but lack clear instructions on how to do so.
One of the tricky areas in the crypto space has been getting clear tax guidance from the IRS on how Americans can pay their taxes when they earn capital gains, or perhaps wages, on these networks.
He added that criminals are more likely to use traditional financial systems to hide illicit funds rather than transparent blockchain networks.
On the other hand, Mark Hayes, senior policy analyst at Americans for Financial Reform, described decentralized finance less positively. He described it as volatile and rife with fraud, with investors often facing devastating losses.
Hayes stressed that DeFi should not get a free pass and that existing securities laws should apply to decentralized systems to protect investors.
Meanwhile, Amanda Tuminelli, chief legal officer at the DeFi Education Fund, took a different approach. She highlighted DeFi’s potential to democratize finance. According to Tuminelli, traditional financial systems rely on intermediaries, who often act as gatekeepers.
“Big banks can block access to the system for discriminatory reasons or no reason,” she said, comparing this to the open-access nature of DeFi. She suggested that anyone with an internet connection could use DeFi, calling it “the embodiment of financial inclusion.”
Tuminelli argued that treating DeFi as traditional finance is not the right approach, as the underlying structures are fundamentally different. She suggested that regulations should take into account the self-custodial nature and anonymity of transactions in decentralized systems.
Cryptocurrencies Out of the Spotlight in the Presidential Debate
On September 10, Vice President Kamala Harris and former President Donald Trump faced off in the second presidential debate for the 2024 election. Despite Trump’s well-known pro-crypto stance, the debate avoided any mention of cryptocurrencies altogether.
Instead, the focus was on traditional economic issues, with no mention of cryptocurrencies, blockchain technology, or broader fintech topics.
Harris’ strong performance during the debate seemed to worry Trump, especially as he struggled to defend his position on controversial issues such as abortion.
All of this seems to have had an impact on the cryptocurrency market, with Bitcoin (BTC) dropping from around $58,000 to $56,000 after the discussion. As of September 11, it has recovered slightly, hovering around $56,800.
Ethereum (ETH), the second-largest cryptocurrency by market cap, also saw a slight decline of around 0.5%, trading at around $2,340 during the same period.
In a surprise to Trump, who has long positioned himself as a champion of deregulated financial markets, his chances of winning are slim. According to The percentage of Conservatives who support their party has fallen to 50% at the time of writing, according to online betting platform Polymarket.
Meanwhile, a CNN poll conducted a quick poll. mirror Harris dominated, with 63% of viewers saying she beat Trump. However, most respondents indicated that the debate would not affect their vote in November.
As the campaign continues and demand for a third debate grows, it remains to be seen whether cryptocurrencies will finally take center stage.
What to expect next?
Throughout the Biden administration, Democrats have been consistently skeptical of cryptocurrencies, highlighting the risks and pushing for stronger regulations. Amid this, Vice President Kamala Harris has remained silent on the issue, leaving her position unclear.
Meanwhile, Trump, who was previously strongly opposed to cryptocurrencies, has changed his tone in an attempt to appeal to pro-crypto voters. In recent months, Trump has shown greater openness toward blockchain technology and cryptocurrencies on several occasions.
However, like Harris, he has remained silent when it matters most, such as during the Twitter exchange between Trump and Musk in August, and again during the second presidential debate, where crypto was noticeably absent.
The future of cryptocurrencies and decentralized finance in the United States remains uncertain. With the election approaching, how the next administration handles this growing sector could have a lasting impact on both innovation and regulation in the financial space.