Understanding the Impact of a Trump Presidency on Cryptocurrencies over a Four-Year Period
In the aftermath of an exhilarating post-election rally that propelled Bitcoin (BTC, up 2.00%) by an impressive 40%, the crypto market was buzzing with optimism, particularly surrounding a Trump presidency. Although BTC has since retreated from the $100,000 mark, the prospects for the crypto sector are nonetheless rosy as we close in on 2025.
So what can we anticipate during the next four years? Will the entire crypto market flourish under Trump's leadership, or will Bitcoin be the primary beneficiary?
A Business-Friendly Regulatory Environment
It's almost a foregone conclusion that a Trump administration will usher in a new pro-business regulatory environment for crypto. Already, SEC head Gary Gensler, widely perceived to be anti-crypto, has signaled his intention to step down on Jan. 20.
By the end of 2025, we could witness the enactment of sweeping new legislation that finally modernizes the U.S. financial system to accommodate crypto. The House of Representatives has already approved the Financial Innovation and Technology for the 21st Century Act, and all that's needed is some political will to see it through.
New legislation might result in the Commodity Futures Trading Commission (CFTC) assuming the lead regulatory role for crypto, rather than the SEC. As a result, we're likely to see a gradual erosion of the SEC's authority over the crypto sphere over the next four years.
Cryptocurrencies that have faced regulatory challenges could potentially benefit from these changes. For instance, in 2023, the SEC designated about 50 cryptocurrencies, such as Cardano (ADA, up 1.81%) and Solana (SOL, up 6.58%), as securities, subjecting them to more stringent regulations. Should the regulatory cloud hanging over them dissipate, it could potentially boost these coins' future prospects.
Crypto as a National Priority
One of the most intriguing developments during a four-year Trump presidency could be the establishment of a national strategic Bitcoin reserve. Like our country's strategic petroleum reserve, this reserve would essentially serve as a safety net during periods of economic instability, helping to mitigate market fluctuations. In an optimistic scenario, it might even be used to help pay down the nation's staggering $35 trillion debt load.
Senator Cynthia Lummis, R-Wyoming, has already introduced the Bitcoin Act of 2024, with the aim of making the strategic Bitcoin reserve a reality. The act proposes investing 1 million Bitcoins over the next five years, which represents 5% of the total circulating supply. This move would further cement the U.S.'s position as a world power in the crypto realm, as suggested by President-elect Trump during his campaign.
It's worth noting that other countries might follow suit. On Nov. 25, Brazil announced plans to establish a sovereign strategic Bitcoin reserve equivalent to 5% of the nation's international reserves. The potential applications for this Bitcoin reserve range from stabilizing the national currency to supporting international trade and helping launch a central bank digital currency.
Innovative Financial Products for Investors
Expect a flurry of new financial products as well, as Wall Street continues to embrace the crypto market. The introduction of spot Bitcoin ETFs marks the beginning of this trend, so watch out for more ETF products, including those specializing in smaller crypto projects.
Additionally, popular crypto-related financial products, such as perpetual futures contracts, used in various international markets, could eventually become available to U.S. investors under a Trump administration.
Will Bitcoin Remain the Dominant Crypto?
Overall, these developments would mostly benefit the broader crypto market, though they're not guaranteed to transpire. However, Bitcoin is most likely to emerge as the clear victor, given its prominence in the eyes of institutional investors and President-elect Trump.
Just keep in mind: Bitcoin tends to follow a cyclical trajectory, reflecting halving events that occur every four years. Consequently, we can expect a substantial market downturn at some point during the next four years. If regulatory barriers are lifted, speculative frenzy might result in an explosive crypto market that eventually crashes.
The silver lining is that Bitcoin has demonstrated remarkable resilience over its 15-year lifespan. Following each market collapse, Bitcoin has consistently bounced back with new all-time highs. So, we could be in store for stratospheric Bitcoin price increases by the end of Trump's second term in office.
In the context of the proposed business-friendly regulatory environment under a Trump administration, investors might consider diversifying their portfolios by investing in cryptocurrencies that had previously faced regulatory challenges, as these changes could potentially boost their future prospects. For instance, cryptocurrencies like Cardano (ADA) and Solana (SOL) might see significant growth if the regulatory cloud hanging over them dissipates.
The enactment of new legislation in 2025 could also lead to a shift in regulatory responsibilities, with the Commodity Futures Trading Commission (CFTC) potentially assuming a leading role in overseeing the crypto sector, thus gradually eroding the SEC's authority. This could benefit cryptocurrencies that have traditionally been regulated more stringently by the SEC.
