Bitcoin's Post-Inauguration Dip: Meme Coin Effect and Dashed Cryptocurrency Policy Expectations

Bitcoin's Post-Inauguration Dip: Meme Coin Effect and Dashed Cryptocurrency Policy ExpectationsThe inauguration of former US President Donald Trump, highly anticipated by the markets, failed to deliver the expected executive order on cryptocurrencies. This resulted in a significant pullback in Bitcoin from record highs, triggering market volatility

Bitcoin's Post-Inauguration Dip: Meme Coin Effect and Dashed Cryptocurrency Policy Expectations

The inauguration of former US President Donald Trump, highly anticipated by the markets, failed to deliver the expected executive order on cryptocurrencies. This resulted in a significant pullback in Bitcoin from record highs, triggering market volatility. This article delves into this event, analyzing its underlying causes and implications for the future of the cryptocurrency market.

Prior to Trump's swearing-in, Bitcoin surged to a record high of $109,241. Market sentiment was overwhelmingly bullish, driven by expectations that the president, who had publicly expressed support for cryptocurrencies, would introduce favorable policies. These included executive orders designating cryptocurrencies as a "national priority," or even the establishment of a strategic Bitcoin reserve, further propelling Bitcoin's price. This expectation stemmed partly from Trump's enthusiastic statements about the digital asset industry during his campaign, and his transformation from initially calling Bitcoin a "scam" to actively supporting cryptocurrencies. Bloomberg News had even reported that Trump was considering signing such an executive order.

However, Trump's inaugural day actions omitted any mention of cryptocurrency policy. He focused on immigration, trade, energy, and TikTok, leaving the anticipated cryptocurrency executive order unannounced. This unexpected move caused Bitcoin's price to plummet, falling below $102,000 at the time of writing. Most other digital assets also experienced varying degrees of volatility.

Richard Galvin, co-founder of hedge fund DACM, commented, "Given the numerous priorities of the Trump administration, it's premature to draw strong conclusions from the absence of an immediate executive order. The market has shown resilience, suggesting investors are adopting a similar long-term view." His statement implies that the market still harbors expectations for the Trump administration's cryptocurrency policy, albeit perhaps not in the short term.

However, the pre-inauguration market volatility wasn't solely driven by dashed policy expectations. The launch of "TrumpCoin," a meme coin featuring Trump and his wife Melania, significantly impacted the market. This event temporarily attracted substantial capital inflows, exacerbating volatility and introducing new uncertainty. Investors initially perceived this move as a potential indicator of a pro-crypto stance from the Trump administration, anticipating further policy developments. This proved unfounded.

The emergence of "TrumpCoin" sparked mixed reactions within the industry. Some executives criticized it, fearing it would trivialize cryptocurrency issuance and damage the industry's image. They believed the unregulated meme coin launch would increase market risk and facilitate potential fraudulent activities.

Others held a different perspective. Ben Elbaz, managing director of HashKey Global, argued that the token launched by Trump and his team actually accelerated Bitcoin's momentum, as retail traders hoped his administration would "prioritize and reiterate its commitment to the crypto industry." This view suggests that although controversial, "TrumpCoin" indirectly increased market focus on the Trump administration's cryptocurrency policy, thus contributing to Bitcoin's price surge.

"TrumpCoin" itself is a noteworthy phenomenon. As a meme coin, its intrinsic value is questionable, its volatility extreme, and its price heavily reliant on social media hype. Its price experienced rapid rises and falls, with its market capitalization plummeting from over $15 billion to under $7 billion in a matter of days, highlighting its high-risk nature.

Significantly, 80% of "TrumpCoin" is held by CIC Digital LLC, a Trump Organization affiliate, and a related entity named FightFightFight LLC, the name stemming from an incident during Trump's campaign. These holdings will be released over three years. According to the official website, 200 million TrumpCoins have been issued, with a future supply of 1 billion over the next three years. A disclaimer on the website explicitly states that the coin is not "an investment opportunity, investment contract or security of any kind."

Gautam Chhugani of Bernstein believes that this "meme coin leveraging the Trump brand and politics has potential staying power. While some may find it distasteful," he added it signals the beginning of "a new crypto regulatory era." His view suggests that despite the controversies surrounding "TrumpCoin," its appearance marks a new phase for the cryptocurrency market, where regulation and standardization will become increasingly crucial.

Since Trump's election victory in early November, Bitcoin's price has surged approximately 50%. This surge largely stemmed from expectations of favorable cryptocurrency policies from the Trump administration. However, the post-inauguration price drop raises questions about the sustainability of this rally. Whether this rally needs a pause if anticipated presidential actions fail to excite speculators is a critical question. Future policy direction, and changes in market expectations regarding policy, will continue to influence Bitcoin's price. The cryptocurrency market will likely continue to face the dual challenges of regulatory uncertainty and inherent market volatility. Investors need to exercise caution and closely monitor market dynamics.