Last week's announcement by Donald Trump to nominate Paul Atkins as the head of the Securities and Exchange Commission (S.E.C.) sent shockwaves through the crypto world. The price of Bitcoin soared to a hundred thousand dollars, and crypto enthusiasts were in a celebratory mood. This reminded me of the dot-com boom and its inevitable bust, which I chronicled over twenty years ago. There was the same excitement, predictions of higher prices, and uneasy feelings among some market participants.

Investment and Policy Shifts

Crypto investors, entrepreneurs, and pro-crypto donors had ample reason to be excited. Investing in Trump's victory and defeating crypto skeptics paid off. Under Gary Gensler's leadership, the S.E.C. took an aggressive approach towards the crypto industry. But with Paul Atkins in charge, the agency's lawsuits and cases may be put on hold, and a more friendly stance towards crypto assets is likely. "For crypto assets, the fundamental rules will be weakened, and the industry will expand with little regulation," said Dennis Kelleher. Crypto leaders hailed Atkins' choice as a landmark.

Comparison with Dot-com Boom

In the late 1990s, the dot-com boom was underpinned by the rise of online commerce. Speculative digital assets like Bitcoin can't be directly compared to those startups. But big speculative episodes rest on four factors: a new technology, an efficient communication method, financial industry participation, and a supportive policy environment. With crypto assets, Bitcoin and the blockchain met the first two requirements, but Wall Street and policymakers were suspicious. In the 2022-23 crypto bust, Bitcoin's price fell by more than 70%, and some big crypto firms collapsed. But with Trump in office, all four conditions seem to be in place for a broader bubble.

SEC's Stance on Crypto Assets

The S.E.C. is at the center of the crypto debate. During Gary Gensler's tenure, the agency argued that many crypto assets are securities and face extensive regulations. But under Paul Atkins, the S.E.C. may shift its position on whether crypto assets are securities or more like physical commodities. This could have significant implications for crypto firms like Coinbase and Ripple. A federal judge's ruling in favor of the S.E.C. against Coinbase was seen as a win, but the Ripple lawsuit had a different outcome.

Wall Street's Embrace of Crypto

After losing a court case in 2023, the S.E.C. approved Bitcoin exchange-traded funds (E.T.F.s), which have seen a significant increase in value since the election. BlackRock, Fidelity, and Franklin Templeton are among the financial firms offering these products, and Charles Schwab offers a "Crypto Thematic ETF". This is encouraging other financial firms to launch similar products.

Risks and Concerns

Economist Eswar Prasad is worried that recent developments could give the wrong impression about crypto assets. A full-blown financial blowup is a worst-case scenario, as seen in the real-estate bubble. Federal banking regulators have tried to keep crypto confined, but history isn't reassuring. During the 2022-23 crypto bust, three banks with ties to the crypto industry failed. Dennis Kelleher predicts that a second Trump Administration could lead to more crypto movement into the financial system.In conclusion, the Trump crypto boom presents both opportunities and risks. The future of crypto remains uncertain, and it will be interesting to see how these developments unfold.