Could Trump Ban Bitcoin?

Last week, U.S. President Donald Trump put Bitcoin back in the global headlines, declaring on Twitter that he dislikes cryptocurrencies, “whose value fluctuates wildly and is created out of thin air. ”

The ensuing online discussion was largely a celebration of the global attention being paid to Bitcoin and the fact that it was now important enough for one of the most powerful men in the world to make a public statement about it. Yet the crypto markets seemed to shrug it off, their indifference suggesting they were worried about something far more serious.

An underlying topic that is overlooked is how vulnerable Bitcoin is to a government the size of the United States. Now that Bitcoin has Trump's attention, will there be more inflammatory rhetoric? Will he declare it a thing that needs to be dealt with? How likely is a Bitcoin ban? Many believe a ban is unconstitutional. Most insist that even if it were passed, a ban would have little impact. Why do people think Bitcoin can't be banned by Trump?

The positions of both parties

If Trump believes that it is unreasonable to continue to implement the Bitcoin protocol, he may decide to ban cryptocurrency businesses. While it is difficult to prevent independent businesses from dealing in assets that are not illegal, the imposition of a series of regulations and fiscal requirements may make such projects no longer viable.

As the United States has done with sanctions against Iran, threatening to retaliate against any company that violates trade bans, regardless of jurisdiction, an aggressive posture by the issuer of the world’s reserve currency has the potential to force other sovereigns to compromise.

Because Bitcoin's code and operations are decentralized, Bitcoin will not disappear in the face of the U.S. crackdown, and its technological advantages will always bring it some demand, but Bitcoin's potential may be weakened.

But this bleak picture misses an important detail: banning Bitcoin is not in Trump’s interest.

Gains and losses

People's trust in Bitcoin is not because the issuance of a Bitcoin ban will face resistance in courts at all levels, and Trump has never shied away from this. But what really worries him is that the issuance of a ban will alienate a large part of his voters.

Part of his election deal was to roll back financial regulation and encourage innovation. Banning Bitcoin would undermine his self-proclaimed image as a disruptor and free-market evangelist, potentially undermining voters’ trust.

And some key Trump states have invested considerable time and energy in positioning themselves as crypto-friendly jurisdictions. Even Trump’s inner circle has Bitcoin supporters: his acting chief of staff, Mick Mulvaney, was an early supporter of cryptocurrency.

And most of “Wall Street,” the traditional financial institutions that Trump seems to want to foster through his fiscal and economic policies, are interested in Bitcoin, either through developing crypto businesses or through investment preferences of institutional clients.

While Trump’s decisions do not always seem to be driven by reason, we should acknowledge that he is a savvy politician who is unlikely to go down a path that would lose him votes and donors.

Leading the way

The most important takeaway from Trump’s outburst is that Bitcoin’s importance has now reached presidential level. While this may increase the risk of negative consequences, it also shows the potential that Bitcoin has, and how far the concept has come. Bitcoin, once a vague and complex idea conceived by a small group of coders, has become a global phenomenon that has attracted the attention of not only all types of investors and companies, but also world leaders.

One of Bitcoin’s strongest attractions for investors is its asymmetric risk: the probability that Bitcoin will fall to zero is less than the probability that its price will rise 10-fold.

There is another asymmetric risk. The chances of Trump trying to ban Bitcoin are not zero, but far less than the benefits to the ecosystem of raising the level of dialogue. As bumpy as the road may be, it’s hard to deny that the zeitgeist has changed when the President of the United States of America tweets about a decentralized store of value designed to bypass existing financial forces.