Signage for Bitcoin cryptocurrency. For most of us, cryptocurrency is nothing...

Signage for Bitcoin cryptocurrency. For most of us, cryptocurrency is nothing like a new internet — it’s both remarkably easy to ignore and risky to use. Credit: Bloomberg/Paul Yeung

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes.

With only a few weeks to go before U.S. elections, in a race where every vote and dollar counts, Donald Trump and Kamala Harris are courting the cryptocurrency crowd. Not quite to the same extent, of course: Trump is predictably going the extra mile to promote cringey NFTs and a crypto lending platform with dubious connections. But hearing both candidates laud digital-asset “innovation,” mentioning it in the same breath as artificial intelligence, requires chutzpah — or a very short memory.

The invention of virtual currencies that exist outside the banking system has no doubt been life-changing for some, not least the 110,591 wallet addresses holding more than $1 million worth of Bitcoin. Yet for most of us, it’s nothing like a new internet — it’s both remarkably easy to ignore and risky to use. Only 2% to 8% of Europeans surveyed in 2022 owned crypto, according to the European Central Bank, and even then they didn’t use it to buy their groceries. The overwhelming use case was for “investment purposes,” a sign that volatile tokens lacking intrinsic value aren’t cash alternatives. Countries like Brazil offer similar stories.

And as an investment, this is more Nasdaq than digital gold. The crypto market grew 300% to €2.5 trillion ($2.8 trillion) in 2021, then fell by more than half in 2022 as the bottom fell out of NFTs, unstable stablecoins and derivatives bets in a manner similar to an old-fashioned banking crisis. Bitcoin prices have rebounded since, up 45% this year, but the game-changer has been the approval of pretty retro U.S. spot exchange-traded funds and the juice of interest-rate cuts.

“Crypto is just another way that people like to speculate, because they like to speculate,” portfolio manager Steve Eisman told Odd Lots in April. Trump should know: He and his relatives are promoting a very speculative crypto-lending platform whose ties to past failed projects and a lack of detail have raised red flags.

Throw in the wasteful energy hog of Bitcoin mining, a string of high-profile bankruptcies and a proliferation of scams — worth $5.6 billion in reported losses in 2023 — and we’re a long way from what Trump compared to the lightbulb, airplanes or AI. Even corporate blockchains — the ledger technology underpinning crypto — don’t look as promising as they used to. The head of fintech firm Wise plc recently said it was a “big user” of machine-learning algorithms but described blockchain as something it simply didn’t need to move money instantly and cheaply around the world. Ironically enough, it’s traditional banks like JPMorgan Chase & Co. that are still the most enthusiastic about blockchain experiments.

So why does talking up crypto “innovation” matter? One answer is regulation. The industry has a lobbying imperative to reduce the political risk that threatens profits. Coinbase Global Inc.’s current legal fight against the Securities and Exchange Commission has an estimated 30% of revenue at stake. It’s telling that the exchange’s most high-profile hire this year was George Osborne, a former UK finance minister; there are an estimated 200 ex-government officials working in the industry as investors or lobbyists. If politicians can be convinced that great crypto minds are fleeing abroad because of an inhospitable SEC, that’s a step toward less harsh rules — and a potential windfall that won’t require invention.

The other reason is the search for the next all-important narrative that will draw more dollars into the crypto market. When there’s nothing really backing an asset like Bitcoin, the story is what matters: Deutsche Bank AG senior strategist Marion Laboure compares it to diamonds, which a century ago weren’t highly prized or priced until De Beers hit upon the right marketing strategy associating romance with rocks on a ring. The combination of more benign regulation, looser monetary policy and the right language about innovation — maybe even something mixing AI and crypto? — might rev up animal spirits if desperate cries to “HODL” can’t.

All the more reason for politicians and people to be on their guard. Harris, to her credit, made clear that consumers and investors needed protection; Trump doesn’t seem interested in guardrails or consistency, judging by his controversial dabbling in social media and silver coins. With central banks around the world still mulling a bigger riposte to the threat of private digital currencies — including a digital euro — financial innovation is about to get a lot more political.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes.

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