"Bitcoin's Trump Bump Fades: Market Correction or Collapse?"
1min read The election of U.S. President Donald Trump in November 2020 sparked a surge in Bitcoin prices, with the cryptocurrency reaching an all-time high of $108,786 on January 20, 2021, when the new administration took office. However, since then, the price of Bitcoin has mostly fallen, dropping below $80,000 on February 28, 2021, a decline of 26%.
The new administration had promised to establish a strategic crypto reserve, appoint crypto-friendly cabinet members, and introduce market-structure reform legislation. While it has delivered on some of these promises, it is worth questioning whether the "Trump effect" on Bitcoin prices has been overhyped.
Macroeconomic factors, such as a looming tariff war and a weakening global economy, may be contributing to the slumping market prices. Additionally, the Bybit hack in late February, which resulted in a $1.4 billion loss for the world's second-largest crypto exchange by volume, has further eroded investor confidence. Some investors, like prominent U.S. hedge fund Elliott Management, have warned that Trump's embrace of crypto could lead to an "inevitable collapse" that could have unforeseen consequences.
A "healthy correction" is one possible explanation for the recent decline in Bitcoin prices. Garrick Hileman, an independent cryptocurrency analyst, noted that the price momentum shift began before the Bybit hack and follows traditional market cycles. Justin d'Anethan, head of sales at token launch advisory firm Liquifi, agreed that the market has experienced a traditional "buy the rumor, sell the news" scenario.
Cryptocurrencies are now more intertwined with traditional markets, making their prices sensitive to macroeconomic concerns like inflation, interest rates, and trade tensions. These broader economic pressures are dampening risk appetite across the board, according to Hileman.
The long-term outlook for cryptocurrencies remains positive, despite the recent price correction. James McKay, founder and principal of McKayResearch, a digital assets consultancy, noted that the past year has seen more positive regulatory developments than the previous four years combined. However, some uncertainty about Trump's policies may still be creeping in, even as optimism remains high.
Hileman suggested that questions remain about whether key initiatives, such as 