Trump's Presidency and the Bitcoin Surge: A Deep Dive into the Potential Shift in US Cryptocurrency Policy and Market Impact

Trump's Presidency and the Bitcoin Surge: A Deep Dive into the Potential Shift in US Cryptocurrency Policy and Market ImpactUS major stock indices closed lower overnight, with the Dow Jones Industrial Average down 0.55%, the Nasdaq Composite down 0

Trump's Presidency and the Bitcoin Surge: A Deep Dive into the Potential Shift in US Cryptocurrency Policy and Market Impact

US major stock indices closed lower overnight, with the Dow Jones Industrial Average down 0.55%, the Nasdaq Composite down 0.18%, and the S&P 500 down 0.19%. The increase in initial jobless claims last week exceeded expectations, shifting investor focus to the November non-farm payroll report due out on Friday. Tesla's stock bucked the trend, rising over 3% to its highest level since April 2022, with Bank of America raising its price target from $350 to $400. Meanwhile, chip stocks generally fell, with Intel and Micron Technology dropping over 5%, and Micron Technology, NXP, Arm Holdings falling over 2%, while AMD fell nearly 2%. The cryptocurrency market also experienced significant volatility, with Bitcoin retracting from its high, causing related stocks to decline. BitDigital fell over 9%, MicroStrategy nearly 5%, and Coinbase over 3%.

On December 6th, Bitcoin experienced a dramatic price swing against the US dollar, plummeting below $90,000 before stabilizing around $96,000. Nearly 210,000 traders were liquidated within 24 hours, highlighting the extreme market volatility. However, this followed a historic high, surpassing $100,000. This significant surge is closely linked to a shift in US President Trump's policy stance and subsequent events.

Since Trump's re-election on November 5th, 2024, Bitcoin's price has steadily risen. On December 4th, Trump announced on social media his nomination of Paul Atkins as chairman of the Securities and Exchange Commission (SEC). Trump stated, I believe that capital markets should be robust, innovative, responsive to investor needs, and provide capital, emphasizing that digital assets and other innovations are critical for making America stronger than ever before. This announcement triggered a rapid market response, with prices surging. On December 5th, Bitcoin's price jumped from $94,600 to $101,960, surpassing $100,000 for the first time, and its total market capitalization reached $2.1 trillion. Other prominent cryptocurrencies, such as Ethereum (ETH), Sandbox (SAND), and DOGE, also experienced significant gains.

Atkins, CEO and founder of risk advisory firm Patomak Global Partners, is a known supporter of cryptocurrencies. He has publicly criticized the overly stringent post-subprime crisis banking regulations (the Dodd-Frank Act's excessive burden on banks) and the SEC's practice of imposing hefty fines on companies. His nomination signals a potential major shift in the Trump administration's cryptocurrency policy.

Trump's attitude towards cryptocurrencies has undergone a significant transformation. During his first term, he referred to Bitcoin as "not money," criticized its volatility and lack of underlying value, and suggested it fueled illegal underground markets. However, during his second term campaign, to garner votes from cryptocurrency supporters and become the first presidential candidate to accept cryptocurrency donations, he reversed his stance. On July 27th, 2024, at the Bitcoin Annual Conference, Trump stated that if he returned to the White House, he would list Bitcoin as a US strategic reserve asset.

Following his re-election, Trump's nominees for key economic and trade positions largely favor cryptocurrencies. For instance, Howard Lutnick, nominated for Secretary of Commerce, is a strong cryptocurrency advocate. His company manages significant US Treasury bond inventories supporting the USDT stablecoin, representing a practical merger of cryptocurrency and traditional finance. He has publicly stated, "Bitcoin is not just an asset of the future, but a part of the future economy." Furthermore, Trump's newly appointed Treasury Secretary, Scott Bessent, also holds a strong pro-cryptocurrency stance, believing that cryptocurrencies can complement the US dollar, benefiting America's global economic competitiveness.

Federal Reserve Chairman Jerome Powell's comments on Bitcoin on December 5th were relatively cautious. He stated, "Bitcoin is like gold, only it's virtual. People aren't using Bitcoin as a medium of exchange or a store of value; it's too volatile. So Bitcoin isn't competing with the dollar, it's competing with gold."

Notably, Elon Musk, a key figure in Trump's 2024 election victory, has been a long-time supporter of cryptocurrencies. Trump also appointed him to head a US government office named the Department of Government Efficiency (DOGE), whose acronym coincidentally matches a cryptocurrency, further demonstrating support for the sector.

The massive influx of funds into Bitcoin ETFs also fueled Bitcoin's surge. In the first week of December, BlackRock's Bitcoin ETF (IBIT) surpassed $50 billion in assets under management, closely correlating with Bitcoin's price increase. According to Companiesmarketcap's global asset size estimations, as of December 5th, the global market capitalization of Bitcoin was approximately $2.1 trillion, about 11.7% of the global gold market capitalization ($17.9 trillion) and exceeding the market capitalization of silver ($1.8 trillion).

Chairman Powell likened Bitcoin to "virtual gold." So, what similarities exist between Bitcoin and physical gold? First, both are scarce assets; gold has limited supply and reserves, and Bitcoin's total quantity is capped. Second, both are decentralized assets. Bitcoin utilizes a global public blockchain, and gold mining is relatively dispersed. Both require "mining," which is a costly process.

However, cryptocurrencies like Bitcoin also have characteristics distinct from gold. Despite low transaction costs, their decentralized nature makes them susceptible to money laundering and illicit speculation. The value of cryptocurrency is still measured against the US dollar. As a decentralized payment method, it complements traditional fiat currency. It exhibits some monetary attributes and characteristics of the US dollar, but because it's not yet a unit of account nor a globally legal reserve asset, its value redemption still relies on the US dollar, other fiat currencies, and gold. Its stability and widespread adoption are far inferior to those of the US dollar and gold. However, during periods of excess US dollar liquidity or significant US dollar overvaluation, cryptocurrencies could potentially act as a global liquidity reservoir, a process likely driven by the market rather than central banks and sovereign entities.

From a reserve asset perspective, given that cryptocurrencies are not yet fully legalized, they are not direct competitors to global reserve assets like the US dollar, gold, and SDRs. Currently, major central banks and sovereign entities do not hold Bitcoin as a reserve asset. However, based on Trump's pronouncements, the US might set a precedent. But Bitcoin and other cryptocurrencies becoming reserve assets will be a lengthy process, as their creditworthiness needs time to gain market acceptance, and their global supply issues, value benchmarks, and price stability pose significant challenges. However, as a broad asset class for residents and businesses, its investment or speculative appeal may increase during President Trump's second term, as the current market trend already indicates.