Bitcoin's Price Soars After Trump's Re-election: A Speculative Frenzy Fueled by Regulatory Uncertainty?

Bitcoin's Price Soars After Trump's Re-election: A Speculative Frenzy Fueled by Regulatory Uncertainty?Since Trump's re-election, the most eye-catching financial asset has undoubtedly been Bitcoin. Its price surged from $68,000 to $100,000 within a month, with some Wall Street analysts even predicting a price of $225,000 within two years

Bitcoin's Price Soars After Trump's Re-election: A Speculative Frenzy Fueled by Regulatory Uncertainty?

Since Trump's re-election, the most eye-catching financial asset has undoubtedly been Bitcoin. Its price surged from $68,000 to $100,000 within a month, with some Wall Street analysts even predicting a price of $225,000 within two years. However, Bitcoin's dramatic volatility hasn't relegated it to the history books.

Bitcoin, the first and most famous cryptocurrency, emerged in the aftermath of the 2008 financial crisis and the Federal Reserve's massive quantitative easing program. Created by idealistic tech enthusiasts, it aimed to establish a new currency free from central bank control and unbound by the dollar. Initially, Bitcoin's issuance was limited only by mathematics and energy consumption, and it was intended to function as a regular currency, such as a payment tool. A widely circulated example is a Bitcoin enthusiast who used the cryptocurrency to buy a pizza delivery, now considered one of history's most expensive pizza orders. In 2010, a user named Laszlo famously posted about buying two large pizzas for 10,000 Bitcoins.

However, Bitcoin has largely lost its original monetary attributes. While some merchants still claim to accept Bitcoin payments, few people actually use it for everyday goods or services. Those who persist in using Bitcoin for payments are mostly involved in illegal activities, such as cybercriminals extorting victims for Bitcoin ransoms.

Having lost its payment function, the cryptocurrency's main function has become a store of value. So, who would use this invisible, intangible electronic data, lacking tax backing and military support, as a store of value?

Firstly, a significant portion of the funds undeniably comes from widespread, less-transparent economic activities globally. In today's technologically advanced world, governments are increasingly tightening regulations on bank-centric financial systems. Large-scale grey and black market operations face greater restrictions and higher costs when attempting to transfer funds through the banking system. Cryptocurrencies like Bitcoin perfectly fulfill the needs of the underground economy: huge sums of money can be transferred almost costlessly and instantly, even across geographical boundaries, while evading government surveillance this is a primary reason why cryptocurrencies have survived numerous crashes.

Another group using cryptocurrencies as a store of value treats Bitcoin as a purely speculative asset. For this "hot money," the target could be tulips, Pu'er tea, lunar land, or electronic data in virtual space as long as a speculative opportunity exists. Cryptocurrencies offer countless hype themes and a constant stream of buyers, making them one of today's hottest speculative assets.

Cryptocurrency tycoon Sun Yuchen's $6.2 million purchase and consumption of a banana might be a microcosm of this speculative feast.

Even with Trump's support, tighter regulation is inevitable. Over the past four years, the US Democratic administration allowed Wall Street financial institutions to publicly trade cryptocurrency futures and options on official exchanges and approved a batch of investment funds with cryptocurrencies as underlying assets. Simultaneously, financial regulators have rigorously investigated specialized cryptocurrency exchanges and financial institutions working closely with cryptocurrency investors, even prosecuting some institutions and investors. For example, Binance's CEO was fined and imprisoned for several months; Trump's proposed Commerce Secretary nominee, Howard Lutnick, faced regulatory scrutiny for his firm's provision of custody, investment, and cash-out services for cryptocurrencies.

Before the 2024 US presidential election, Trump, through the matchmaking of Silicon Valley elites, frequently interacted with US investors in cryptocurrencies. In exchange for these investors' funds and electoral support, Trump promised to lift legal regulatory restrictions on the cryptocurrency industry upon re-election and even provide official support for its development. Therefore, when election results indicated a possible Trump win, speculative enthusiasm ignited, causing Bitcoin's price to skyrocket. Subsequently, various outlandish rumors emerged, the most prevalent being that Trump would instruct the Federal Reserve to purchase $1 trillion in Bitcoin as central bank reserves. Coincidentally, this rumor began circulating after Bitcoin's price peaked at $100,000 and started to pull back.

According to US political tradition, Trump might favor cryptocurrency investors who supported his campaign, such as the aforementioned Lutnick's nomination as Commerce Secretary, and regulatory investigations into cryptocurrency companies might be temporarily suspended.

However, the policy benefits Bitcoin investors expect might not be as substantial as current market prices reflect. The main reason is that the vast underground economy is a major driver of cryptocurrency demand, making government regulation and judicial investigations unavoidable. As long as grey and black market income forms a significant component of cryptocurrency demand, cryptocurrencies, as crucial links in the financing chains of these industries, will naturally remain a primary target of government regulation and strict control, driven by the need to combat crime.

While the creation and holding of cryptocurrencies are decentralized and bottom-up, cryptocurrency exchanges are centralized. Coupled with the feature that cryptocurrencies record all historical transaction information, controlling the data of major cryptocurrency exchanges allows tracking of users. The US government has brought the world's major cryptocurrency exchanges under its regulatory umbrella over the past few years. Some major exchanges have also restricted certain cryptocurrency holders under US pressure; for example, after the Russo-Ukrainian war, accounts of some Russian cryptocurrency holders were frozen by exchanges. It's safe to assume that future government regulation of cryptocurrency transactions will become increasingly stringent, ultimately reaching a level of complexity similar to banking regulations in the long term.

Another narrative supporting the Bitcoin hype is the Federal Reserve acquiring Bitcoin as a reserve asset. Of course, Trump himself or some of his advisors might, out of self-interest or personal preference, push for such policies. However, the established managerial group within the massive US financial system might scoff at this. For those who actually control the system, the US has achieved dollar hegemony and can print money at will. Why revert to a "Bitcoin standard" similar to the past gold standard, limiting its ability to print money?

Even if Trump intends to use Bitcoin as a reserve asset, from a purely policy perspective, the current Fed Chair, Jerome Powell, is unlikely to be directly dismissed by Trump before his term ends in 2026. If Trump wants to appoint a more compliant Fed Chair, he would need to wait until 2026, before potentially pushing for a Bitcoin policy. Therefore, this narrative is currently far-fetched. Perhaps for this very reason, the "Fed reserves Bitcoin" rumor will continue to be used repeatedly as a hype theme in future cryptocurrency speculation.

For China, due to the massive energy consumption of Bitcoin mining and the close connection between grey and black market activities and cryptocurrencies, the buying and selling of unofficial cryptocurrencies has been declared illegal. However, this doesn't prevent hot money seeking speculative returns and illegal funds using cryptocurrencies to evade regulation from continuing to trade and hold cryptocurrencies through various channels. For example, Yao Qian, former director of the Technology Regulation Department of the China Securities Regulatory Commission, was expelled from the party and removed from office for serious disciplinary violations, one of which involved using cryptocurrencies for illicit transactions. Before the emergence of cryptocurrencies, various underground economic activities already engaged in money laundering, and quid pro quo transactions already existed. Cryptocurrencies merely added a convenient and concealed intermediary option for these corrupt and criminal activities.

Unofficial cryptocurrencies offer no positive utility to the Chinese economy. However, blockchain technology and the digital yuan built upon it hold the potential to boost the real economy. For instance, some domestic export companies often face difficulties in receiving payments from banks when exporting to certain countries and regions. Even if trading partners are willing to pay in RMB, it's difficult to fully overcome the obstacles presented by banks' inability to provide services. If the use of the digital yuan can break free from the banking system like cryptocurrencies, allowing export companies to directly receive payments from foreign importers, facilitating trade, then this cryptocurrency technology would provide effective service to the Chinese real economy. However, the feasibility of such digital yuan use cases requires further exploration and experimentation.