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The Cryptocurrency Shift: From Skepticism to Embrace

Sam Hawley: Once a staunch skeptic, Donald Trump has dramatically shifted his stance on cryptocurrency and is now not just a supporter but appears to be actively profiting from it. His embrace of cryptocurrency has coincided with a significant rise in the value of digital currencies, such as Bitcoin, which have seen their prices soar. In fact, Trump has been passing landmark bills in Congress aimed at transforming the crypto landscape. Today, we’re joined by Ross Buckley, a Laureate Fellow and Scientia Professor from the University of New South Wales, to explore whether the rapid rise in cryptocurrency values is sustainable or if we are simply witnessing a bubble primed to burst. I’m Sam Hawley reporting from Gadigal land in Sydney, and this is ABC News Daily.

Surging Values in Cryptocurrency

Sam Hawley: In recent developments, Bitcoin has achieved a record high this month. Can you share an overview of what’s contributing to this surge, Ross?

Ross Buckley: Absolutely! This year has been remarkable for Bitcoin, showcasing an incredible trajectory. Its value has surged approximately 25% since the year began, reflecting an ongoing trend of increasing demand.

News Report: Bitcoin’s price has skyrocketed by an impressive 10% within just one week.

News Report: Bitcoin has broken the significant barrier of $100,000 and recently reached an all-time high exceeding $120,000.

Ross Buckley: There are thousands of cryptocurrencies available; while many are obscure, the more recognized ones have been performing exceptionally well.

Sam Hawley: It’s astonishing that the overall market capitalization for cryptocurrencies has exceeded four trillion dollars. So, Ross, let’s delve into the factors behind this phenomenon. It’s evident that Donald Trump plays a pivotal role, having transitioned from labeling cryptocurrency a "total scam" during an interview on Fox News in 2021.

Donald Trump, US President: Bitcoin seems like a scam to me. It competes against the dollar, and I want the dollar to remain the world’s primary currency.

Sam Hawley: Yet now he’s fully on board!

The Transition of Donald Trump

Ross Buckley: Indeed, he has undergone a remarkable transformation. One crucial factor is his ability to garner substantial support from crypto enthusiasts during his electoral campaign. Additionally, Trump’s personal financial gain from cryptocurrency has been monumental—estimates suggest he has already amassed between $320 million to $350 million. Moreover, his wife’s earnings from this realm are likely around $160 million.

Sam Hawley: It appears the entire family is benefiting financially from these developments. This naturally raises several ethical questions.

Ross Buckley: Absolutely, those questions are valid.

Understanding Cryptocurrency: More Than Just a Trend

Sam Hawley: Before delving deeper, could you clarify how cryptocurrency functions? It’s not tangible money that you can use directly in stores, correct? Much of its value hinges on public perception and hype.

Ross Buckley: Exactly! The creation of cryptocurrency is underpinned by a limited supply—according to its underlying algorithm, no more can be produced than a certain maximum amount. Consequently, as demand escalates while supply remains stagnant, the value tends to soar. It’s misleading to state that cryptocurrencies can’t be used for purchases. They are indeed usable, albeit inefficiently. For instance, individuals seeking anonymity might use them for illicit transactions on the dark web, where tracing assets becomes nearly impossible. However, for legitimate purchases, they remain a highly inefficient medium.

Sam Hawley: Right; it seems cryptocurrencies find more utilization in illegal activities than in mainstream transactions.

Ross Buckley: Precisely. For legitimate investors, they act more as speculative assets. Historically, market booms of this magnitude often precede significant declines, resulting in substantial losses for many. This underlines the necessity for financial regulations—to safeguard everyday investors.

Trump’s Role in Regulatory Changes

Sam Hawley: With Trump now a prominent advocate for cryptocurrency, he is simultaneously overseeing its regulation. Can you elaborate on the recent "Crypto Week" in the United States?

Ross Buckley: Certainly! Crypto Week featured a series of three pivotal bills advancing through Congress. The first, termed the "Genius Act," has already passed and was signed into law.

Donald Trump, US President: We worked tirelessly on this; the Genius Act is undeniably important—it’s named after me, after all!

Ross Buckley: While Trump might humorously think it refers to him, "Genius" is actually an acronym standing for the Guiding and Establishing National Innovation for US Stablecoins Act. This act aims to establish a regulatory framework for stablecoins, which, while similar to cryptocurrencies, are fundamentally different and promise more financial stability.

United States Congress: The ayes are 294, the nays are 134. The bill is passed without objection. A motion to reconsider is laid on the table.

Ross Buckley: The second piece of legislation is called the Clarity Act. This provides a comprehensive regulatory framework for the entire cryptocurrency sector, which has played a significant role in fostering legitimacy and smoother operation for financial services. Additionally, the Anti-CBDC Act is noteworthy, as it ensures the U.S. will not issue a central bank digital currency (CBDC), a move that stands in stark contrast to the global trend where leading economies are striving to create their own CBDCs.

Unpacking Stablecoins

Sam Hawley: So, for those of us who are not well-versed in this area, could you explain stablecoins and their significance?

Ross Buckley: Certainly! Stablecoins are digital currencies tied to real-world currencies, such as the U.S. dollar. The Genius Act stipulates that banks and certain entities can create their own digital currencies as long as they’re fully backed by U.S. dollars or highly secure financial instruments like short-term U.S. Treasuries. I believe stablecoins have the potential to revolutionize global finance, especially in Australia, where traditional international payment methods are outdated, slow, and costly.

Sam Hawley: So, if I were to purchase a stablecoin worth a dollar, the issuer must indeed maintain a dollar in reserve?

Ross Buckley: Correct! Under the Genius Act, these reserves will be audited monthly to ensure compliance, confirming that each stablecoin is genuinely backed by actual currency.

Sam Hawley: Thus, it would allow for immediate redemption whenever needed?

Ross Buckley: Exactly! The tokenized nature of stablecoins, compared to conventional money, makes them highly adaptable for modern technologies, allowing for efficient transactions.

The Future of Stablecoins

Sam Hawley: How prevalent do you think stablecoins could become in our financial system?

Ross Buckley: They will primarily function as digital representations of national currencies, which is why many nations, including Australia, are contemplating the roll-out of their own CBDCs. However, the challenging landscape in the U.S.—marked by distrust in government—has fostered an environment where central bank issues may not be as welcomed. The Federal Reserve and other central banks see CBDCs as an evolutionary step in financial systems.

Sam Hawley: Are major corporations like Amazon and Walmart inclined to adopt stablecoins?

Ross Buckley: Precisely! Large companies are keen to reduce costs associated with standard payment methods, like credit card fees. By integrating stablecoins, they could create their own payment systems, effectively diminishing reliance on conventional payment processors like Visa and MasterCard.

Australia’s Response to Cryptocurrency Regulation

Sam Hawley: Given recent trends, what is Australia’s current stance on cryptocurrency regulation?

Ross Buckley: I anticipate a cautious approach from Australian regulators due to the impending risks associated with large-scale investments in cryptocurrency. However, Australian banks will likely explore their own stablecoin systems for smoother international transactions.

Sam Hawley: But could the Reserve Bank of Australia (RBA) end up issuing something akin to stablecoins in the future?

Ross Buckley: Certainly, the RBA is actively exploring a central bank digital currency, especially as they have engaged in significant research on its applications. Their Project Acacia is particularly focused on integrating CBDCs to facilitate the exchange of tokenized assets.

The Bigger Picture

Sam Hawley: While many are intrigued by cryptocurrency, others are still hesitant. Will advancements in blockchain technology truly make cryptocurrencies more accessible, or are the risks still too daunting?

Ross Buckley: The rise of stablecoins promises to enhance international transaction efficiency, although average consumers may not notice these changes as they happen behind the scenes. Still, the allure of speculative cryptocurrencies remains very much a personal decision. At current pricing levels, investing in cryptocurrencies can be exceedingly volatile and risky.

Sam Hawley: Thank you, Ross Buckley, for providing this invaluable perspective. Ross Buckley is a Laureate Fellow and Scientia Professor at the University of New South Wales. He also serves on the Payments System Board at the Reserve Bank. This episode was produced by Sydney Pead, with audio production by Sam Dunn and supervising producer David Coady. I’m Sam Hawley. Thank you for listening.

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