Bitcoin breaks through $100,000. Where will the U.S. crypto-friendly policies push the market?

Produced by｜OKG Research
Authors｜Hedy Bi, Jason Jiang

Before Trump officially took office in the White House, the crypto market had already begun to celebrate in advance, cashing in on policy news. This morning, due to Trump's official nomination of Paul Atkins as SEC chairman, Bitcoin broke through $100,000. Since Trump's election victory, Bitcoin has risen from $68,000 on November 5 to $100,000, achieving a 47% return in just one month. In this article, the author will analyze how policy changes shape the market landscape from the perspective of U.S. crypto policy and the potential development directions in the new landscape.

A "Tough and Brutal" Shift in Crypto Regulation Towards More Openness and Friendliness

During his campaign, Trump made ten crypto-friendly commitments to the market, including establishing a strategic Bitcoin reserve. The nominated SEC chairman, Paul Atkins, is also known for his friendly attitude towards cryptocurrencies, advocating for reduced regulation to support market innovation. Trump mentioned today that Paul knows "the importance of crypto assets and other innovations in making America greater than ever before and believes in a strong, innovative capital market." Paul has also criticized the SEC's hefty fines for harming shareholder interests, advocated for flexible regulatory strategies, and served as co-chair of the Token Alliance. Trump's move to appoint Paul Atkins, who has previously promoted the crypto industry, changes the SEC's previous punitive approach towards the crypto sector, bringing the idea of "financial freedom" into U.S. financial regulatory agencies.

Additionally, other members of Trump's team have provided strong support for the regulatory special focus on crypto finance: over 60% of nominated cabinet members have publicly stated they own Bitcoin or support the development of crypto finance, or indirectly support the growth of crypto assets.

In addition to Trump's commitments to the crypto market and the previously proposed "Financial Innovation and Technology Act of the 21st Century" (FIT 21 Act), the recent Tornado Cash incident also marks a shift towards a more open and friendly direction in U.S. crypto regulation. At the end of November, the Fifth Circuit Court of Appeals ruled that the Treasury's sanctions against Tornado Cash's immutable smart contracts were illegal, stating that these smart contracts do not meet the legal definition of "property." This ruling provides important support for the legality of smart contracts, allowing developers and users to use these protocols without facing direct conflicts with traditional legal frameworks, thus promoting finance towards a more inclusive and friendly direction, which directly benefits the thriving development of decentralized finance (DeFi).

"America First" Requires More Freedom for Industry and Financial Capital

Financial freedom not only opens up greater development space for the crypto market but also indicates that with the connection between crypto assets and traditional financial assets (TradFi), a profound market integration is brewing. With the development of the digital society and driven by future technologies like artificial intelligence (AI), the way value is created is accelerating its transformation. Former Alibaba strategist Chen Ming pointed out that General Artificial Intelligence (AGI) will become a core technological breakthrough in productivity in the future, closely integrating with crypto assets to give rise to a large number of new digital assets.

Blockchain, as a value network technology connecting the digital society and the real world, will play a key role for crypto assets in this transformation. Under the impetus of the "America First" policy, Trump proposed an AI version of the "Manhattan Project," intending to elevate AI technology to a national strategic level and vigorously promote the industrialization process.

In addition to the future digital society being inseparable from crypto assets driven by AI, Standard Chartered Bank has also stated that almost any real asset in the real world can be tokenized, and it is expected that by 2034, global demand for tokenized assets will reach $30 trillion. Whether it is the future development of the digital society needing crypto assets or the asset circulation in the real world requiring tokenization, the integration of crypto assets and traditional financial assets has market potential that will far exceed the "Great Merger Era" of the 1930s and the "Internet Merger Era" of 2000, the former giving rise to $600 billion in industrial consolidation, and the latter pushing the market scale to $3 trillion.

The integration process is now unstoppable. Whether it is the promotion of crypto asset ETFs or the emerging track represented by RWA (real-world assets), just the stablecoin application alone has created a market value of over $200 billion. With the continued penetration of crypto technology, the "cryptoization" process of the entire financial market has already begun, which will reshape the global financial landscape and give rise to a new capital ecosystem that is more open and integrated.

How the Three Key Crypto "Commitments" Will Impact the Market

Whether it is the announcement of establishing a strategic Bitcoin reserve or the nomination of a crypto-friendly SEC chairman, Trump's election seems to usher in the most friendly regulatory environment for the crypto industry in history, thus opening up the recent upward channel for Bitcoin. However, in the medium to long term, the real driving force pushing the crypto industry forward is clearly not the price of Bitcoin, but whether Trump can fulfill those verbal commitments to crypto and start providing more space for the crypto market from a legislative level. If Trump can leverage his high prestige within the party and the recent overwhelming victory of the Republican Party in both houses of Congress to actively promote key legislation represented by the following three bills, it may bring a new situation to the crypto industry.

• The FIT 21 Act Will Be Prioritized to Encourage DeFi Innovation to "Return" to the U.S.

The FIT 21 Act may be the first bill Trump prioritizes after taking office. This is regarded as "the most important" crypto bill to date, which not only clearly defines when cryptocurrencies are commodities or securities but will also end the "tug-of-war" between the SEC and CFTC in crypto regulation. The U.S. House of Representatives previously passed the bill with an overwhelming majority and submitted it to the Senate, but the latter has not taken decisive action. However, with Trump's ascension, the market generally expects the progress of this bill to accelerate.

Once the FIT 21 Act is passed, compliant trading platforms and crypto-listed companies will emerge more frequently, and the clear attribute standards will make tradable tokens more abundant, providing new opportunities for spot ETFs and other crypto financial products. One of the reasons why Ethereum ETF applications have struggled to pass is due to vague qualitative definitions; the SEC has long viewed Ethereum after the PoS mechanism transition as more like a security. It was only when the SEC and Wall Street found a "balance point," clearly stating that Ethereum ETFs without staking are not securities, that progress could continue. After the bill is passed, for cryptocurrencies clearly categorized as "digital commodities," it will be easier to launch spot ETFs and related financial products based on meeting relevant preconditions. We may see more types of cryptocurrencies such as SoL, XRP, HBAR, LTC, etc., in spot ETFs next year.

Several institutions have submitted Solana ETF applications

The FIT 21 Act will also promote the development of decentralized application innovation, especially in the DeFi sector. The FIT 21 Act clearly states that if relevant tokens are deemed decentralized and functional, they will be considered digital commodities and not subject to SEC regulation, and as long as the degree of centralization meets the requirements, they can obtain a certain exemption period, which will encourage more DeFi projects to evolve towards a more decentralized direction. The bill also requires the SEC and CFTC to study the development of DeFi, assess its impact on traditional financial markets and potential regulatory strategies, and with the exemption period factor, it will attract more DeFi projects to "return."

Moreover, under the impetus of friendly policies and expectations of interest rate cuts, more traditional funds will flow into DeFi seeking higher returns, further stimulating DeFi's reinvention. A clear trend is that DeFi will continue to expand collateral assets, bringing more off-chain liquidity on-chain. This will promote the deep integration of DeFi with RWA, allowing tokenized assets such as U.S. Treasury bonds and real estate to be used for collateral or lending, enriching the combinability and imaginative space of on-chain finance, and allowing DeFi's influence to spread off-chain. The RWA track will also benefit from this integration, leading to more substantial returns and accelerating the bidirectional expansion between on-chain and off-chain.

The value of DeFi in the Bitcoin ecosystem cannot be ignored. While penetrating off-chain through ETFs, Bitcoin also shows more possibilities within the on-chain ecosystem. Considering that the Bitcoin market is primarily composed of long-term holders, coupled with the fact that spot ETFs keep market liquidity at a lower level, the resulting Bitcoin lending track may welcome new opportunities. As the SEC is likely to allow Ethereum spot ETFs to be staked, staking projects in the DeFi ecosystem may receive widespread attention.

• U.S. Stablecoin Legislation is Back on the Agenda

In 2023, the U.S. House Financial Services Committee passed the "Payment Stablecoin Clarity Act," but it did not receive approval from the House. In October of this year, crypto-friendly Senator Bill Hagerty submitted a similar draft again, along with Trump's previous commitment not to promote a CBDC issued by the Federal Reserve, and the FIT 21 Act defining licensed payment stablecoins and emphasizing the importance of the licensing system, stablecoin-related legislation may be back on the agenda after Trump takes office.

Stablecoin legislation will directly affect the issuance of U.S. dollar stablecoins and related payment institutions. Some smaller or algorithmic stablecoins may be forced to exit the market, while legitimate stablecoins (such as USDC) will occupy a larger market share. At the same time, as legislation clarifies compliance requirements, traditional payment service providers will accelerate the adoption of compliant stablecoins, enhancing their availability and usability in daily transactions, and related enterprises and users will be more willing to accept stablecoins as a supplement to the existing payment system rather than just for cryptocurrency trading use cases. The market share of stablecoins in cross-border transfers and settlements will continue to rise, with user volume and settlement scale expected to continue to approach or even surpass institutions like Visa.

Furthermore, whether directly obtaining returns through underlying assets (such as government bonds, money market funds, etc.) and distributing them to relevant participants, or obtaining on-chain returns through DeFi protocols, various yield products based on compliant stablecoins will continue to emerge and will be favored by users, but care should be taken to avoid making stablecoins exhibit characteristics of investment contracts when designing yield mechanisms.

• The Repeal of the SAB 21 Proposal is Expected to Restart, Solving the Custody Dilemma for Crypto Assets

Whether it is the development of crypto financial products like spot ETFs or the growth of RWA, stablecoins, and DeFi, all will boost the demand for crypto custody services. This will force the restart of the repeal of the SAB 121 (Staff Accounting Bulletin No. 121) proposal. SAB 121 was issued by the SEC in 2022, requiring companies to record custodial crypto assets as liabilities, which greatly increased the asset-liability ratio of enterprises, affecting financial health and credit assessments, leading related companies to be unwilling to provide custody services.

Trump promised during his campaign to repeal this announcement upon taking office. The most direct benefit of repealing SAB 121 is to reduce the compliance burden on crypto custody institutions, allowing banks and other regulated entities to more easily enter the crypto custody field, thereby attracting more institutional investors into the market. Due to the accounting treatment requirements of SAB 121, many banks and financial institutions had previously been relatively cautious about crypto financial products like spot ETFs; the repeal will reduce the complexity for financial institutions in managing these crypto assets. Stablecoin providers and payment-related businesses will also be affected, especially those projects integrated with the traditional financial system. The repeal of SAB 121 may create a more relaxed regulatory environment for these enterprises, helping them develop core functions such as payments and settlements. The currently popular narrative of RWA will benefit from this, allowing more traditional custody institutions to manage tokenized assets more flexibly, thus attracting more financial institutions willing to participate.

Undeniably, every step of the crypto-friendly policies in the Trump 2.0 era is profoundly reshaping the boundaries of the crypto market. From regulation to accounting standards, every seemingly minor change carries far-reaching strategic significance. Paul Atkins' nomination signals a more lenient crypto regulatory environment, and institutional reforms at the asset level are equally noteworthy. The new FASB regulations (ASU 2023-08), which will take effect on December 15, 2024, require companies to record the financial value of their held crypto assets at fair value. This means that the value changes of crypto assets like Bitcoin held by companies will directly reflect in their financial statements, significantly impacting net income. The implementation of this rule will encourage more companies to include mainstream crypto assets like Bitcoin on their balance sheets. Additionally, Microsoft will hold a board meeting on December 10 to formally discuss whether to include Bitcoin in its corporate strategic reserves, providing a high-recognition industry signal for this trend.

As Bitcoin breaks through $100,000 today, OKX CEO Star stated on the X platform that this is "the power of vision and technology." The path of integration between tradition and innovation will undoubtedly reshape the new order of global capital markets.