Bitcoin’s price has always been influenced by a range of factors, including global demand, market fundamentals, and macroeconomic conditions. While Donald Trump’s previous administration was not explicitly pro-cryptocurrency, its policies and economic strategies inadvertently created a climate that favoured Bitcoin’s growth. Fast forward to the 2024 elections, and the narrative has shifted significantly. Trump’s recent promises to support the cryptocurrency sector have sparked optimism, with Bitcoin reaching record highs following his projected victory.
But what should investors focus on during his next term? The Federal Reserve’s trajectory and the future of its current Chair, Jerome Powell, are likely to be critical factors.
The Trump Administration and Bitcoin’s Past Growth
Trump’s first term indirectly supported Bitcoin’s rise. Economic policies such as fiscal stimulus, debt expansion, and low interest rates created a fertile environment for the cryptocurrency market. These measures encouraged investors to seek alternative assets like Bitcoin, which remains immune to inflationary pressures and central bank interventions.
Although Trump’s administration did not officially endorse cryptocurrencies, the economic environment it fostered—characterised by low interest rates and expansive fiscal policies—played a key role in driving Bitcoin’s adoption and price growth.
The Key to Bitcoin’s Future: Trump and the Federal Reserve
One of the most significant factors to monitor in Trump’s next term will be his relationship with the Federal Reserve and Jerome Powell’s position as its Chair. Trump has previously criticised Powell’s approach to interest rates, despite nominating him in 2017. While Powell’s term lasts until 2026, Trump could eventually appoint a replacement more aligned with his economic vision.
A renewed Trump-Fed conflict could provide the perfect storm for Bitcoin’s next surge. Here’s why:
1. Eroding Trust in Central Banks
Another Trump-Fed clash over monetary policy, particularly regarding interest rates, could undermine public trust in central banks. Bitcoin, being decentralised and immune to manipulation by monetary authorities, often benefits from such a loss of confidence in traditional financial systems.
Elon Musk’s recent criticism of the Federal Reserve on his X profile has added further scepticism towards central banks, a sentiment that could bolster Bitcoin’s appeal as an alternative asset.
2. Rising Inflation Concerns
If Trump continues to advocate for expansionary fiscal policies and lower interest rates, as he did during his first term, this could lead to heightened fears of inflation. Bitcoin has long been viewed as a hedge against inflation, particularly by institutional investors seeking to preserve wealth.
Indeed, the inflation-hedging narrative was the primary reason for my own first cryptocurrency investment back in 2016. Should inflationary concerns resurface under Trump’s leadership, Bitcoin could experience a fresh wave of adoption as a store of value.
3. Increased Market Volatility and Safe Haven Demand
Political conflicts with the Federal Reserve have historically triggered significant market volatility. Such turmoil often drives demand for safe-haven assets. Bitcoin, frequently referred to as “digital gold,” has demonstrated a strong correlation with traditional safe-haven assets like gold.
Over the past 90 days, Bitcoin and gold have exhibited a Pearson correlation coefficient of 0.76, underscoring Bitcoin’s emerging role as a hedge against market instability. While this correlation is not guaranteed to persist in all scenarios, it reinforces Bitcoin’s appeal during periods of heightened economic uncertainty.
Trump’s previous term was marked by significant geopolitical tensions, ranging from trade wars with China to conflicts in the Middle East. Bitcoin’s decentralised nature made it an attractive refuge for investors looking to hedge against these uncertainties, a trend that could very well continue in his upcoming presidency.
A Renewed Opportunity for Bitcoin
During Trump’s first administration, Bitcoin thrived in a climate shaped by fiscal stimulus, low regulatory interference, and accommodative monetary policies. While Trump was not an overt supporter of cryptocurrencies, his policies laid the groundwork for Bitcoin’s success.
Now, with Trump taking a more supportive stance on the crypto sector, and the potential for continued economic and geopolitical uncertainty, Bitcoin could once again find itself in a highly favourable position.
Bitcoin’s strength lies in its ability to thrive amidst uncertainty and innovation. As Trump’s second term unfolds, investors should pay close attention to his decisions regarding the Federal Reserve and broader economic policy. Whether through indirect support or deliberate advocacy, the Trump administration could help drive Bitcoin’s next phase of growth.
While Bitcoin’s path is rarely straightforward, its resilience in the face of political and economic shifts ensures it remains an attractive investment. With Trump poised to return to the White House, the future of Bitcoin promises to be both challenging and full of opportunity.
– Caio Marchesani