Bitcoin Surges on Trump's Victory: Is It Too Much?

Stock SpotlightFriday, Nov 15, 2024 4:00 am ET

1min read

Following Trump's announced victory, Bitcoin's price soared, hitting new all-time highs. The reasoning seems straightforward: Trump has a crypto-friendly stance.

But is it really that simple?

Market analysts point out that Bitcoin faces minimal regulatory pressure since it's treated as a commodity. The SEC previously attempted to regulate Bitcoin as a security but lost the case, leading to the approval of a Bitcoin ETF.

Theoretically, if regulatory attitudes toward cryptocurrencies relax, other cryptos should benefit more than Bitcoin, given their heavier regulatory burdens.

Additionally, relaxed regulations could actually be unfavorable for Bitcoin, as the overall market capital is limited. Increased demand for other coins might divert buyers and money away from Bitcoin.

So, why did only Bitcoin surge post-Trump's victory, while other cryptocurrencies remained relatively quiet?

The first theory is the market leader effect. Bitcoin is the largest cryptocurrency and is practically synonymous with crypto, so any positive news for the crypto market benefits Bitcoin. However, top cryptocurrencies serve different purposes, which should lead to varying trends.

The second theory is Trump's campaign promise to establish a national strategic Bitcoin reserve. However, this idea lacks logic. Strategic reserves are intended for countries with unstable foreign exchange due to lack of confidence in their currency, or for recycling trade surpluses into overseas assets. Neither applies to the U.S. Even if pursued, would Trump really divert U.S. resources from spending or tax cuts to purchase Bitcoin?

The third argument involves inflation concerns. Some Bitcoin buyers still see crypto as an inflation hedge. However, Bitcoin has never been a reliable inflation hedge, as demonstrated when the inflation hedge theory fell apart in 2022, with Bitcoin's trends aligning more closely with tech stocks like the Nasdaq.

In other words, Bitcoin represents animal spirits rather than dry economic analysis. It's no wonder it resonates with Trump.

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