--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson.
--:-- Jessica Mendoza: And I'm Jessica Mendoza. It's Wednesday, December 11th.
--:-- Ryan Knutson: Our colleague Alexander Osipovich has covered Bitcoin for seven years. And he has a takeaway. Bitcoin is not for the faint of heart. It's very volatile and periodically it has these massive drawdowns where it loses much of its value.
--:-- Alexander Osipovich: That's right. And we've seen it happen before. Bitcoin at $20,000, we got Bitcoin hitting a new all-time high. It topped $50,000 a coin. Bitcoin plunged by 22% to below $42,000.
--:-- Jessica Mendoza: Some key cryptocurrencies, like Bitcoin, did rebound a bit today, but that's only after months of steady, dramatic losses. So the price of Bitcoin near an all-time high. What's your favorite Bitcoin milestone?
--:-- Alexander Osipovich: Well, I quite like the one that was in late 2017 when Bitcoin got nearly to $20,000. So I felt like that was the first time that Bitcoin really broke out into the broad public consciousness and grandma was buying Bitcoin.
--:-- Jessica Mendoza: The ones since then have felt like a season recap or something to me. Okay, and if grandma bought Bitcoin at $20,000, how's grandma doing today?
--:-- Alexander Osipovich: Grandma would have gotten about a five-fold return on her investment. Because last week, crypto hit a major milestone. What happened?
--:-- Ryan Knutson: Late in the evening on Wednesday, December 4th, Bitcoin traded above $100,000 for the first time. This was the culmination of a rally that began with the election of Donald Trump.
--:-- Alexander Osipovich: Trump has lately styled himself as a pro-Bitcoin, pro-crypto candidate, promised to appoint people who are crypto-friendly, adopt crypto-friendly policies, and the crypto market has responded to that.
--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson.
--:-- Jessica Mendoza: And I'm Jessica Mendoza. It's Wednesday, December 11th. Coming up on the show, what Bitcoin's rally tells us about where crypto is headed next.
--:-- Alexander Osipovich: Just two years ago, the vibe in the crypto world was so bad that it was considered a crypto winter. At that time, cryptocurrencies were plunging. Firms were filing for bankruptcy. And then the crypto exchange FTX imploded.
--:-- Jessica Mendoza: That was a low point. Bitcoin fell to around $16,000 per coin then. Many people at that point left crypto for dead and didn't think it was going to come back.
--:-- Alexander Osipovich: What was the reputation of crypto at that point?
--:-- Ryan Knutson: Crypto reputation took a beating after the collapse of FTX. There was the sense that if somebody who was a fairly well figure in crypto like Sam Bankman-Fried turned out to be a crook, then, well, what did that say about the rest of the industry?
--:-- Alexander Osipovich: And regulators, government officials took a very skeptical look at crypto, kind of wanted to hit the brakes on its development. And for a while, regulators were on the warpath, bringing different crypto cases, trying to rein in this Wild West of an industry.
--:-- Jessica Mendoza: And if crypto is the Wild West, the sheriff has been the Securities and Exchange Commission. The SEC, which regulates stocks and bonds, has argued that the crypto industry should be regulated like traditional finance.
--:-- Alexander Osipovich: The SEC has filed lawsuits against some of the biggest players in crypto. Securities and Exchange Commission filing charges against Binance. The SEC is suing crypto trading platform Coinbase.
--:-- Ryan Knutson: How did the crypto world respond to this?
--:-- Alexander Osipovich: The leaders of the crypto industry were definitely very frustrated with the approach of the SEC. They argued that the laws that the SEC was using, these securities laws, were just outdated and not really relevant to the way cryptocurrencies worked.
--:-- Jessica Mendoza: Some of them said that, well, we want to register, we want to be regulated, but these regulations just don't make sense for what we do.
--:-- Ryan Knutson: The crypto firms fought back in court, but they did something else too. They also turned their attention to political organizing and raising money for different candidates to try to get a more friendly regime in place in Washington.
--:-- Alexander Osipovich: Interesting. What did they do to do that?
--:-- Ryan Knutson: Well, there's a long tradition in America of spending a lot of money to elect candidates that are friendly to your industry. And the crypto industry picked up that playbook.
--:-- Jessica Mendoza: It was a very big spending industry that essentially hadn't really existed before on the campaign finance front.
--:-- Alexander Osipovich: In the 2024 election cycle, crypto firms spent big. They funneled tens of millions of dollars into super PACs, backing pro-crypto candidates and trying to get crypto-minded voters to the polls with ads like this.
--:-- Ryan Knutson: Crypto equals innovation. Innovation equals jobs. That's why I'm a crypto voter. Don't let anyone else decide your future. Make a plan to vote.
--:-- Jessica Mendoza: One advocacy group backed by Coinbase, called Stand With Crypto, gave candidates a rating from A to F based on their support for the crypto industry.
--:-- Alexander Osipovich: As the crypto industry is like, they're like, okay, we need some allies in D.C. What were they looking for? What are their aims?
--:-- Ryan Knutson: One of the major aims of the crypto industry was to get a new regulatory framework written for crypto in the U.S. Essentially, the crypto industry has lobbied for new rules to be written by Congress that would essentially allow a sort of light, easy-to-use regulatory framework for crypto companies to offer their coins, offer trading in different digital coins, and have it all be blessed by regulators.
--:-- Jessica Mendoza: That is a big item on the crypto wish list. And this big election push worked. In the end, according to Stand With Crypto, nearly 300 pro-candidates were elected to Congress.
--:-- Alexander Osipovich: And some lawmakers seen as hostile to the industry were voted out. So going into this next administration, the crypto industry is in a pretty good spot.
--:-- Ryan Knutson: Yes, the crypto industry is definitely very excited about Donald Trump and the incoming administration.
--:-- Jessica Mendoza: Coming up, what a Trump White House could mean for crypto.
--:-- Alexander Osipovich: When Trump won the election, the crypto world celebrated by driving up the crypto market. A cryptocurrency surge that's been gripping Wall Street since President-elect Trump won the election last week.
--:-- Ryan Knutson: We're talking about cryptocurrency. It's hitting record highs after the election. Bitcoin hit another record high yesterday.
--:-- Jessica Mendoza: There was a lot of excitement among Bitcoin investors that Trump would be great for crypto, great for Bitcoin. And he's essentially friendly to the crypto industry.
--:-- Alexander Osipovich: Trump has even said he'd have the government own a lot of crypto. One of his pledges has been to create a Bitcoin strategic reserve.
--:-- Ryan Knutson: The idea is essentially if the U.S. government comes into possession of Bitcoin, for instance, through seizing Bitcoin and some kind of law enforcement action, it wouldn't sell those Bitcoins. Instead, it would hold them and kind of gradually amass this stockpile.
--:-- Jessica Mendoza: It will be the policy of my administration, United States of America, to keep 100 percent of all the Bitcoin the U.S. government currently holds or acquires into the future. We'll keep 100 percent.
--:-- Alexander Osipovich: The name of this concept, the Strategic Bitcoin Reserve, sounds a lot like the Strategic Petroleum Reserve, which is a giant stash of crude oil that we have that's owned by the government.
--:-- Ryan Knutson: And if you apply that idea to Bitcoin, it becomes very bullish for the price of Bitcoin because you essentially have a giant holder locking up some of the supply and buying it and not selling it.
--:-- Jessica Mendoza: Another sign of Trump's support of crypto came last week when he announced his pick for the new head of the SEC, a former SEC commissioner named Paul Atkins.
--:-- Alexander Osipovich: Paul Atkins is a Republican former regulator who generally has taken the view that the government should stay out of financial markets, be a kind of light-touch regulator, not go too heavy on enforcement actions.
--:-- Ryan Knutson: Atkins has been running a consulting company, Potomac Global Partners, whose clients include crypto firms. One of Potomac's clients was FTX.
--:-- Jessica Mendoza: The general expectation in the industry is that a Paul Atkins-led SEC will be less tough in terms of enforcement and might even drop some of the current lawsuits that are pending against crypto firms.
--:-- Alexander Osipovich: Here's Atkins on a podcast last year talking about crypto regulation. The rules impede financial innovation. So that's one reason why the SEC should be there with its ear to the ground to figure out, okay, which way are things moving, and let try to accommodate activity that not criminal and enable markets to flourish because if it...
--:-- Ryan Knutson: In his comments that he made about crypto so far, he's taken the view that the existing SEC under the leadership of Gary Gensler went too far in terms of enforcement actions against crypto.
--:-- Jessica Mendoza: And he's argued that it would have made more sense to create some rules of the road for crypto and not just go and try to find a bunch of companies.
--:-- Alexander Osipovich: What was the market reaction to the announcement of Atkins as the chair of the SEC?
--:-- Ryan Knutson: The crypto market rallied after Atkins was announced as the head of the SEC. There were a few good things that happened for crypto that day besides Atkins. Jerome Powell, the chairman of the Federal Reserve, also made some comments about how he didn't see Bitcoin as a competitor to the U.S. dollar.
--:-- Jessica Mendoza: All that together, along with the general sentiment that's existed in the market since Trump won, pushed Bitcoin above $100,000 for the first time.
--:-- Alexander Osipovich: What does all of this excitement say about crypto right now?
--:-- Ryan Knutson: Well, people have certainly tried to write off crypto before. Several times it has crashed and lost much of its value, and people have written obituaries for Bitcoin.
--:-- Jessica Mendoza: But then it's come roaring back.
--:-- Alexander Osipovich: What seems to have happened with Bitcoin in particular, and I'm not talking about the many other cryptocurrencies out there, is that people have really seized on this idea that it is a form of digital gold.
--:-- Ryan Knutson: One of the fundamental properties built into it is limited supply. There will never be more than 21 million Bitcoins. Most of those are already in existence.
--:-- Jessica Mendoza: And so if there's demand for it, that is just going to drive the price up, just basic laws of supply and demand.
--:-- Alexander Osipovich: And at a time when we have lost trust in a lot of our institutions, people are worried about inflation. There's this idea that maybe it's nice to store value in Bitcoin much the same way that people might have bought gold bars before.
--:-- Jessica Mendoza: Does Bitcoin hitting $100,000 mean it is no longer a sort of fringe thing and it's sort of becoming more establishment than it used to be?
--:-- Alexander Osipovich: Bitcoin has definitely become more mainstream over the years. I mean, 10 years ago, it was this weird niche thing that most people hadn't heard of.
--:-- Ryan Knutson: And the people who are into various online subcultures that most people didn't even know about.
--:-- Jessica Mendoza: But over the years, what generally happened is that there have been signs of mainstream adoption.
--:-- Alexander Osipovich: The fact that the president-elect of the United States is now talking positively about Bitcoin is another sign of mainstream adoption.
--:-- Ryan Knutson: And Bitcoin's rise to 100,000 has been a roller coaster, as we've mentioned.
--:-- Jessica Mendoza: Which direction do you think Bitcoin's going in from here?
--:-- Alexander Osipovich: Bitcoin really could go either way. There are Bitcoin people who think it's going to hit 200,000 or 250,000.
--:-- Ryan Knutson: That said, historical performance suggests that it tends to rally to these very high peaks and then crash dramatically.
--:-- Jessica Mendoza: So it really could go either way. It's likely to continue being a roller coaster.
--:-- Ryan Knutson: That's all for today, Wednesday, December 11th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Dave Michaels and Caitlin Ostroff.
--:-- Jessica Mendoza: Thanks for listening. See you tomorrow.
