The week gone by was a big one for financial markets as Donald Trump returned to the White House as the new US president.
With Trump back in power, it’s almost a given - his pro-business stance and commitment to boosting the American economy are the front and centre.
The surge in share markets reflects investor confidence that his agenda will drive this deal to completion.
US stocks rallied overnight on the election day, with Tesla jumping 15% and DJT soaring over 30%. Other big gainers were fintech companies tied to the crypto industry. Coinbase shares rallied, marking their strongest performance since January 2023.
The real standout performer, however, was bitcoin. The largest cryptocurrency skyrocketed to a new all-time high of $75,000 as Trump’s odds of winning gained momentum.
The rally further gained momentum as Bitcoin hit a new all-time high of $81,000 on Monday. At the time of writing this, prices have neared $90,000!
A big part of the reason why crypto prices, especially Bitcoin, is inching higher is because Donald Trump is the first president who has vowed to ease the regulatory burden on crypto.
Trump has not shied away from bitcoin and has always been pro-crypto market.
This time, Trump campaigned on a vision of a pro-bitcoin administration - one that would protect digital assets, create a regulatory environment favouring crypto growth, and establish a US bitcoin strategic reserve.
These moves would not only boost bitcoin but could also spark a global domino effect.
In the aftermath of World War II, the global economy was in shambles. To stabilize the world financial system, the US laid the foundation for the US dollar to become the world’s reserve currency. The concept was simple yet powerful: tie the value of the dollar to gold and have all other currencies pegged to the dollar.
But it wasn’t until the 1970s that the true dominance of the dollar was cemented. The US struck a deal with Saudi Arabia and other Opec countries. The agreement? All oil sales would be conducted in US dollars.
This deal was a game-changer. Countries that needed oil were forced to hold dollars, creating a constant demand for the US currency.
Now, imagine a scenario where a new administration, like Trump’s, decides to embrace bitcoin fully.
If Trump champions bitcoin, other nations may feel compelled to follow suit.
Trump taking charge as the US president spells good news for bitcoin miners. Deregulating the energy industry could unlock new levels of abundance and drive down prices.
Pair that with a pro-bitcoin president, and you get a powerful tailwind for the crypto market. This combination could turn bitcoin mining into an even more attractive investment opportunity.
In fact, we are already seeing some things happening. The central bank of Argentina has opened an art exhibit that actively mines bitcoin.
Such a stance from a central bank towards mining bitcoin is quite rare.
Let’s look at a few historical data points.
As can be seen from the table above, in each of the instances, the prices have gone up.
Nevertheless, if you want to take this data with a pinch of salt, that’s fine as BTC does not care who the next president is. The cryptocurrency has continued to climb higher in the long run.
In 2024 so far, bitcoin is up around 85%.
This rally seen in 2024 was helped by robust demand for bitcoin-based exchange-traded funds (ETFs) and interest-rate cuts by the Federal Reserve.
In January 2024, when bitcoin prices were hovering near $45,000, we wrote about bitcoin explaining why the crypto adoption may take place this year. We explained why it was important that you spend some time to re-evaluate what is happening in the crypto space.
It's not for any reason that bitcoin is one of the best performing assets over the last decade despite all the chaos and uncertainty surrounding it.
If you are invested or looking to invest in cryptos, we suggest entering the arena with low expectations.
If things go well and bitcoin's price rises, you will be pleasantly surprised. If things don't go well and bitcoin goes down, you will have expected it. It's all about closing the gap between expectations and reality.
From the above data points, one thing becomes clear. The momentum is surely building up in cryptos, especially in bitcoin.
It's simple economics: as new demand enters the market, prices go up.
Bitcoin creator Satoshi Nakamoto once said, "When someone tries to buy all the world's supply of a scarce asset, the more they buy, the higher the price goes."
Things could get really interesting over the next few months once there's more clarity on how Trump proposes to promote bitcoin, bitcoin mining, and ultimately create a bitcoin strategic reserve.
A bitcoin strategic reserve would be a gamechanger… it will be unlike anything we have seen before.
Once US implements this, every nation and every central bank would have to quickly create a bitcoin strategy.
Most data points suggest more gains for bitcoin. The open interest in bitcoin’s price running above $90,000 rose to more than $2.8 billion yesterday on the popular Deribit derivatives exchange.
The bulls are clearly in control. Just sit back and enjoy the show if you are a bitcoin holder!
We at Equitymaster are not against investing in bitcoins. However, an investment like a bitcoin should not be where you park your maximum savings. They should be the high risk-high return part of your overall corpus.
Our "fundamental" take on cryptos is in line with the approach anyone should have when dabbling in a space one does not understand.
Invest only what you can afford to lose. Nothing more.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
