How Does the Trump Trade Affect Bitcoin Markets?

Donald Trump is the runaway favorite to win the U.S. elections in November after he survived an assassination attempt on July 13, according to Ethereum-based pollster Polymarket. This is a big deal for the millions of people in the United States who own Bitcoin (BTC) and other cryptocurrencies.

Polymarket raised Trump’s chances of victory to 60%, against current president Joe Biden’s 7% and vice president Kamala Harris’ 22% at the time of writing. The presumptive Republican presidential nominee has branded himself as a cryptocurrency candidate.

Two days after the attempt on Trump’s life, Bitcoin recovered 6.2% from a recent two-week slump. Variables behind the rally could include the end of Germany’s $3 billion BTC sell-off. But Trump’s predicted victory might also play a significant role, as Bitcoin holders anticipate the asset reaching $100,000 under a pro-crypto administration.

Crypto Lobby Comes Into Play

Trump has officially tailored his campaign to court the 52 million people in the U.S. who hold crypto. The former president has shifted from his well-known dismissiveness to make Bitcoin a focus of his “America-first” innovation campaign.

The crypto-owning demographic, which accounts for 20% of the population, could prove decisive in the November elections. This is because the demographic is distributed across the country, with the potential to spur its preferred candidate in individual states, including high-stakes battlegrounds.

During the 2024 election cycle, a cryptocurrency lobby has become a major factor for the first time in American politics. Crypto businesses are throwing fundraisers to influence policy changes and key appointments at regulatory bodies like the Securities and Exchange Commission (SEC) should Trump win a second term.

According to a Public Citizen report, crypto-backed political action committees (PACs) have raised more than $102 million in the current election cycle, and rank third of all super PACs. Of this amount, $54 million comes from corporate expenditures, primarily by Coinbase and Ripple Labs, according to the report.

“Four of the eight corporate crypto super PAC donors have settled or are facing charges by the SEC for alleged violations of securities laws,” the report added.

Trump, who is scheduled to speak at the Bitcoin Conference in Nashville, Tennessee, on July 27, appears to be fulfilling expectations. On July 16, the Republican presidential candidate announced venture capitalist J.D. Vance as his running mate.

The crypto lobby, along with tech moguls like Elon Musk and Peter Thiel, had backed the 39-year-old Ohio senator for the job. Crucially, Vance wants to safeguard cryptocurrency constitutionally and limit the power of regulatory agencies over the sector.

What is the Trump Trade?

Put simply, the Trump Trade describes how financial markets are reacting to the likelihood of Donald Trump winning the election in November. When Trump was first elected in 2016, he quickly reversed many policies from the Barack Obama era.

Experts believe that if Trump wins again, it could hurt the labor market, clean energy, and other sectors, but it would likely benefit Bitcoin. Quasar Elizundia, a research strategist at Pepperstone, notes in comments shared with Cryptonews that the Trump Trade involves Trump’s unique economic policies and positions, which profoundly affect financial markets. These policies include:

According to Elizundia, Trump’s tough stance on immigration may decrease the supply of cheap labor, resulting in increased labor costs. “This, in turn, could create inflationary pressure as companies try to pass these additional costs on to consumers,” the expert said.

Protectionist tariffs are expected to raise the costs of imported goods for American consumers and potentially provoke trade retaliations from other countries. Elizundia explained that the attendant trade uncertainty could affect “global supply chains and increase market volatility” in a bad way.

The researcher noted that Trump’s populism and disruptive attitude can be interpreted as relatively favorable for the cryptocurrency sector. Put together, different aspects of the Trump Trade create a focus for Bitcoin as a sanctuary from indeterminacy.

“Economic and political uncertainty tends to increase the attractiveness of alternative assets like Bitcoin and other cryptocurrencies, which are perceived as a hedge against the instability of the traditional financial system,” Elizundia said.

How Does Donald Trump Affect Markets?

Bitcoin went mainstream during Trump’s first term. The price of BTC soared by more than 3,900% from just under $1,000 in January 2017 when Trump assumed office to over $40,000 by the time he left four years later.

U.S. stock markets hit record highs, partly spurred by stimulus spending following the Covid pandemic. The value of the S&P 500 climbed 20% in the days after Trump’s unexpected win in November 2016.

It’s not easy to rationalize the positive impact of Donald Trump’s first term on cryptocurrency, especially given his documented disdain for the sector. Although cryptocurrencies often thrive during times of instability and seem to have a counterintuitive relationship with the establishment, Trump’s presidency was not bad for business. His controversial social policies sent people into the streets, yet they did little to discourage the stock markets, which continued to soar.

It is possible that Trump’s tax cuts, which appeared to favor the rich, and his protectionist measures resonated with the markets while coming across as politically incorrect. According to Bryan Lim, an associate professor of finance at the University of Melbourne, the market’s reaction was an outcome of the second reading of market efficiency being applied by capital.

“The first interpretation says that if markets are efficient, prices in markets accurately reflect all available information. The second says that if markets are efficient, investors cannot make abnormal profits by trading on available information,” he argued in a past blog post, now archived.

Recently, Trump outperformed incumbent Joe Biden in a presidential debate. Despite the former president’s penchant for exaggeration and criticizing the left, he didn’t need to stretch the truth far, as Biden has had his fair share of problems with the economy. A 2022 Reuters poll found that around 55% of Americans disapproved of Biden’s handling of the economy as inflation reached 9.1% in June of that year, the highest in 40 years.

Meanwhile, Trump has doubled down on his separatist rhetoric. The social climate is as charged as it was during his first term, with the far right positioning themselves as crusaders for free speech and financial innovation. As things look up for Trump, the markets may not be far behind.

For example, following the attempt on Trump’s life, Bitcoin ended a two-week decline, rising 6.2% to more than $63,000. Trump-themed meme coins also reacted positively to the former president’s surge in ratings. The price of the MAGA token soared nearly 65% in less than 45 minutes after the shooting incident. During the same period, its market capitalization increased from $293 million to $469 million. FightETH, a meme coin inspired by Trump’s defiant ‘fight’ statement as security agents moved him from the podium, surged 120% within minutes of its creation.

An Unlikely Crypto Ally

Trump, who is not well-known for his commitment to green energy, has promised to support Bitcoin miners in the U.S. He has also promised to relax regulations and appoint favorable officials to key regulatory agencies. This is a far cry from his documented dismissiveness of cryptocurrency over the years.

As president in 2019, he tweeted, “I am not a fan of Bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated crypto assets can facilitate unlawful behavior, including drug trade and other illegal activity.” In 2021, the former president likened crypto to a scam designed to work against the U.S. dollar.

However, in May this year, Trump rebranded into an unequivocal champion of Bitcoin and vowed to support American dominance in the sector. “Crooked Joe Biden, on the other hand, the worst president in the history of our country, wants it to die a slow and painful death,” he wrote on his social network Truth Social.

The Trump campaign is making every effort to appeal to crypto enthusiasts. The Republican party has begun accepting crypto donations. Additionally, its manifesto prioritizes digital currencies over artificial intelligence as a focus for driving innovation.

Not everyone is convinced. Crypto pundit and former BitMEX CEO Arthur Hayes believes that Trump has not genuinely embraced crypto but is instead grandstanding for political gain. He urges the crypto community to pressure politicians into passing legislation that would protect the ownership of cryptocurrencies under “free speech.”

The Supreme Court has previously upheld giving money to election campaigns as a form of free speech. Given Trump’s flip-flopping on various policy issues in his first term, constitutional safeguards may be a more certain bet.

Billionaire investor Mark Cuban thinks the likelihood of tax cuts under Donald Trump will have an inflationary effect on the dollar and drive up the value of Bitcoin. “What will drive the price of BTC is lower tax rates and tariffs, which if history is any guide (and it’s not always ), will be inflationary,” he posted on X.

Part 1
Here is a contrary opinion on the emergence of Silicon Valley support for former President Trump. Which like all my opinions on here, probably won’t be popular.

It’s a bitcoin play.

Not because the former President is a far stronger proponent of crypto. That’s nice.…

— Mark Cuban (@mcuban) July 17, 2024

According to Cuban, Trump’s reputation as a geopolitical wildcard could negatively impact the dollar, favoring BTC. “Combine that (tax cuts) with global uncertainty as to the geopolitical role of the USA, and the impact on the US Dollar as a reserve currency, and you can’t align the stars any better for a BTC price acceleration.”

Banking on Vance

Trump’s newly named vice presidential candidate, J.D. Vance, sits on the U.S. Senate’s banking committee and has shown initiative in the legislative process. The 39-year-old advocates for clear laws over regulatory control in sectors including technology and cryptocurrencies.

The “Hillbilly Elegy” author, who holds Bitcoin, has previously co-sponsored legislation granting banks unregulated access to crypto markets. He has actively promoted crypto within the Trump campaign, earning him an endorsement from fundraisers for the vice presidency.

The Ohio Senator could be problematic for the tech sector, having proposed the breakup of giants like Google and Meta, which he views as too “progressive.” Meanwhile, participants at the Tennessee Bitcoin Conference, organized by Vance, will need to pay a steep $800,000 per seat. A previous event organized by Vance charged $300,000 per seat.

Such an honor to join President Trump and VP @JDVance1 last night at the RNC. Let us come together and Make America Great Again! pic.twitter.com/Qnj9uA9O9v

— Cory Mills (@CoryMillsFL) July 17, 2024

Democrats Still in Play

Trump’s pro-crypto branding does not guarantee him all the votes from the sector. A survey of 1,000 registered voters by crypto venture capital firm Paradigm found that 48% of participants plan to vote for Trump, while 39% favor Biden. It’s important to note that crypto holders aren’t single-issue voters; they might support Trump’s crypto policies but disagree with him on other important issues.

Biden’s administration has not been altogether hostile to cryptocurrencies either. This year, the SEC approved rule changes to allow the listing of spot Bitcoin and spot Ethereum exchange-traded funds (ETFs) in a first for the sector.

However, these concessions were hard-won after a series of expensive court battles. As far as crypto lobbyists are concerned, a friendly policy environment will serve them better than litigation. This includes companies like Coinbase and Ripple, which have reported losing millions in legal battles with the SEC.

In terms of legislation, the Financial Innovation and Technology bill has enjoyed bipartisan support in Congress. Democrats have also started accepting donations in cryptocurrency.

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