Crypto Moves #51 – Trump’s Win: A Game Changer for Crypto
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This Tuesday, the U.S. electorate reelected Donald Trump as the 47th President of the United States. We—and surely the market as a whole—have consistently noted that Trump’s return to the White House will have an extremely strong positive effect on the crypto market. For more on this, refer to Crypto Moves #28 and #45, where we covered Trump’s recent crypto-related actions and statements.
We see two imminent key outcomes emerging from Trump’s upcoming administration. First, we expect Trump to reverse the so-called “crypto crackdown” seen under Biden’s administration. Over the past two years, the U.S. Securities and Exchange Commission (SEC) has ramped up enforcement against crypto firms, including prominent public companies like Coinbase. In 2023 alone, the SEC filed 104 enforcement actions in the crypto space, following a “regulation by enforcement” approach.
Instead of issuing clear legal guidelines, the SEC has largely responded to crypto companies’ inquiries with litigation, creating a hostile environment. This has discouraged both U.S.-based companies and foreign players from expanding in the U.S. market and has likely also discouraged American banks from exploring crypto services, reducing buying pressure, innovation, and support for decentralized use cases on public blockchains.
We expect this landscape to change significantly soon after Trump takes office on January 20, 2025. With Securities and Exchange Commission (SEC) Chair Gary Gensler—the likely architect of this “crypto crackdown”—expected to either step down or be replaced by Trump, we anticipate the appointment of a far more crypto-friendly SEC chair.
Additionally, we expect Trump’s administration to establish a regulatory framework better suited to digital assets, allowing for growth and innovation within the industry. While this framework may take a year or more to fully implement, the long-term impact should be substantial.
These two factors are crucial, especially given the U.S.’s role as the world’s largest capital market. The tremendous success of the U.S. Bitcoin spot ETFs launched in January highlights the significance of U.S. participation in the crypto market and signals how much more influential it may become.
Beyond U.S. policies, the influence of the American stance on crypto should not be underestimated. As the largest capital market globally, the U.S. sets a precedent that may encourage positive regulatory developments in other countries, including Europe. Trump’s favorable view on crypto could trigger a wave of progressive regulation internationally, setting off a chain reaction that could reshape the industry worldwide. Overall, this marks the beginning of a transformative era for the crypto industry.
Unsurprisingly, crypto prices are already reflecting this optimism, as seen in recent gains in Bitcoin and Ethereum prices following the election.
Chart 1: Bitcoin and Ethereum Prices In the Past 7 Days
These price surges have been accompanied by significant inflows into crypto-related investment products. The recently launched Bitcoin ETFs saw an impressive inflow of $621.9 million yesterday, while U.S. Ethereum ETFs also attracted $52.3 million—a sharp reversal from the underwhelming inflows seen since their late-July debut.
Chart 2: Daily U.S. Bitcoin and Ethereum ETFs Flow In the Past Two Weeks
As discussed in last week’s Crypto Moves #50, both the one-year forward USD interest rate and the 10-year Treasury yield rose throughout September and October, driven by rising market expectations of Trump’s potential win. This increase was partly fueled by the belief that Trump’s presidency could bring substantial tariffs on imports, potentially sparking inflation and prompting higher interest rates to counteract it.
However, despite Trump’s victory yesterday, neither the one-year forward USD interest rate nor the 10-year Treasury yield has risen further, consistent with our forecast from last week’s note.
Chart 3: U.S. 1-Year Forward and 10-Year Treasury Yield
The fact that yields have remained steady since Trump’s election victory is a positive sign for the crypto market. Higher yields typically draw investors toward traditional assets, diverting funds away from riskier investments, as we discussed in Crypto Moves #43. This stability in yields suggests that the market had already priced in the impact. With yields not rising further, we reinforce last week’s conviction that they will gradually decline, especially as any tariffs under Trump’s administration would likely take time to implement, if they materialize at all. Reflecting back to 2017, when Trump first took office, his campaign rhetoric around tariffs was not matched by immediate, drastic action. Any tariffs that were introduced took considerable time to be enacted.
Adding to our confidence, we see an increasing divergence between oil prices and the 10-year Treasury yield, which have historically moved in tandem. With oil prices trending downward, we expect Treasury yields to soon follow, further reducing yields.
Chart 4: Oil vs. U.S. 10-Year Treasury Yield
Additionally, the U.S. Federal Reserve’s decision today to cut interest rates by 25 basis points is a positive development. As we previously noted in Crypto Moves #43, lower rates support declining yields and, in turn, benefit digital asset prices. This rate cut had been anticipated well before Trump emerged as a strong contender in the election.
Overall, we are highly optimistic about crypto’s outlook. Trump’s win on Wednesday is poised to transform the industry for the better. What is also encouraging is that his election has yet to produce any adverse effects on the broader macroeconomic environment, although we will continue to monitor this closely.
Too high, too fast
That said, it seems the crypto market may be getting ahead of itself. Right now, the excitement is palpable, and Bitcoin’s open interest has reached yet another all-time high. If you have followed our recent analyses, you know we are cautious about elevated open interest in the derivatives market, a concern we discussed in this Crypto Crisp. High open interest signals that the market is becoming overly enthusiastic and speculative, with recent price increases driven more by derivatives than by the healthier spot market.
Chart 5: Bitcoin and Ethereum Futures Open Interest
Historically, whenever open interest has approached levels similar to the current peak, the market has struggled to maintain momentum, leading to pullbacks across Bitcoin and other crypto assets. The “air” supporting the rally tends to run thin, causing prices to dip as speculation reaches unsustainable levels.
Additionally, funding rates for Bitcoin and Ethereum have been rising over the past few days. While these rates are still below this year’s highs, the increase signals that traders are largely betting prices will only go up—a sentiment that often indicates unhealthy market confidence.
Chart 6: Bitcoin and Ethereum Futures Funding Rates
Adding to our concerns, the Coinbase Premium Index for Bitcoin has surged dramatically in recent days. This points to U.S. retail and institutional investors as key drivers of the current rally, which aligns with expectations but also warrants caution. Earlier this year, we observed that a negative Coinbase Premium Index has typically signaled a more sustainable price trend, while a positive premium, like we are seeing now, has often preceded price pullbacks.
Chart 7: Bitcoin vs. Coinbase Premium Index
Given these factors, we are approaching this rally with caution. Ideally, we would like—and expect—to see Bitcoin return to around $70,000 to clear some of the speculative excess currently inflating the market. In this range, we would expect a period of consolidation before a faster climb to new all-time highs, particularly as Trump’s inauguration approaches and the macroeconomic landscape continues to improve.
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