Bitcoin & the ‘Trump Trade’
Tom Everill | 02 December 2024
Summary
Trump's election win triggered a crypto surge, with Bitcoin surpassing $90,000 for the first time.
His promises of crypto-friendly policies and SEC changes are driving major institutional investment.
Markets are optimistic but wary of inflation risks from his proposed economic policies.
The aftermath of the U.S. presidential election has triggered large moves across multiple asset classes, with cryptocurrency markets experiencing particularly notable gains. This sudden surge, coupled with broader market reactions, signals a fundamental shift in investor sentiment and potentially marks the beginning of a new era for digital assets in American financial markets.
Cryptocurrency Markets
The immediate market response to the election results was dramatic. As vote tallies came in on the night of 5th November indicating a likely Trump win, Bitcoin surged past its previous all-time high of $73,800, recording a 9% gain accompanied by a massive trading volume of $28 billion. This momentum has carried through to 12th November, pushing Bitcoin to new heights of almost $90,000 (at the time of writing), while the broader cryptocurrency market capitalisation expanded by over $230 billion within just six days.
The rally appears to be driven by the potential implications of a new Trump administration’s policies alongside the president-elect’s pledge to fire SEC Chair Gary Gensler on ‘day one’. Trump’s pledge to dismiss Gensler, who is perceived as tough on cryptocurrencies, while technically beyond direct presidential authority, could be achieved through several administrative mechanisms. These include a formal request for resignation, a reassignment of roles within the commission, or a nomination of a new chair subject to Senate confirmation. With Republicans’ large Senate majority and increasingly likely control of the House of Representatives, the probability of pro-crypto legislation passing has increased significantly, potentially ushering in a more favourable regulatory environment for digital assets.
Institutional Adoption and Market Outlook
The maturation of cryptocurrency markets is evident in the channels through which capital is flowing. According to research by CitiBank, exchange-traded fund (ETF) flows have emerged as a primary driver of returns, with Bitcoin and Ethereum ETFs recording sizable post-election inflows of $2.01 billion and $132 million respectively. This institutional engagement is particularly significant given the approximately $6.3 trillion currently on the sidelines in money market funds, representing substantial dry powder that could fuel further market gains.
The United States' position as the world's largest cryptocurrency market by transaction volume, as reported by Deutsche Bank, suggests the overall market stands to benefit disproportionately from American regulatory liberalisation. Industry leaders have been quick to recognise this potential, with the CEO of Binance characterising the election outcome as the beginning of a "golden era" for cryptocurrency. This is while Coinbase's CEO has portrayed it as a path toward greater economic freedom in the United States.
Broader Market Impact and Economic Context
This cryptocurrency rally is part of a broader "Trump Trade" that has emerged across financial markets. Major U.S. indices (Dow Jones, S&P 500 and Nasdaq) have recorded significant gains, with cryptocurrency-adjacent equities like Coinbase and MicroStrategy showing particular strength. This risk-on sentiment has been amplified by the President-elect's campaign promises, including plans to make the U.S. the "crypto capital of the planet."
Furthermore, the Federal Reserve's monetary policy stance has evolved significantly in recent months in response to retreating inflation, with a 50 basis point cut in September 2024, followed by an additional 25 basis point reduction the day following the election. However, the market must reconcile these accommodative measures with potentially inflationary policies proposed by the incoming administration.
Lingering Inflation
Trump’s economic agenda presents both opportunities and challenges for markets. Proposed corporate tax reductions from 21% to 15% for domestic producers could stimulate economic activity. However, in addition to planned tariff increases - up to 60% on Chinese goods and 20% globally - this may also trigger a resurgence in domestic inflation. Additionally, the incoming administration's proposed immigration restrictions and mass deportations could tighten labour markets, prompting further concern around such an inflationary reemergence.
Bond Market Response
Fixed-income markets have responded to the complex landscape with increased volatility. The yield on the 10-year Treasury has climbed to 4.475%, reflecting concerns about expanded government borrowing alongside an increasingly promising equities outlook. Market participants are now debating the extent of future yield increases, with some analysts suggesting levels could reach 5%. The bond market's reaction encapsulates broader uncertainty surrounding the implementation of campaign promises and their economic impact. The ICE BofA MOVE Index has shown elevated volatility levels, indicating significant disagreement among market participants about the future path of interest rates and inflation.
The post-election market environment reflects significant optimism regarding cryptocurrency and digital asset adoption as American equities enter a second year of this current bull market, though execution and policy risks remain. The sustainability of recent market-wide advances will likely depend on the successful implementation of proposed regulatory reforms and their interaction with broader economic policies in addition to an avoidance of geopolitical risks in Eastern Europe and the Middle East. While the U.S. market appears poised for continued leadership in digital asset adoption, the global regulatory landscape remains complex, with Europe and China maintaining less accommodating stances. The coming months are crucial in determining whether the current market optimism translates into lasting structural changes in the digital asset ecosystem.
Binance
Forecast
Short-term
Equity and cryptocurrency markets continue to post gains absent of geopolitical crises and other external factors.
Medium-term
Similar to Trump’s first term, China tariffs may be used as bargaining leverage rather than concrete trade policy.
Long-term
Cryptocurrency adoption in the United States is likely to regain its pre-Biden momentum, perhaps prompting liberalisation elsewhere such as in China as America’s rivals fear falling behind.