Trump won the presidential election, and Bitcoin rose by nearly fifty percent. The expectation of fewer regulations under a Trump administration is likely a big part of the post-election Bitcoin rally. However, more factors will weigh on the future of Bitcoin under Trump. How much of Bitcoin currently flirting with $100,000 is due to post-election enthusiasm and now much of the current price is indicative of a continued Bitcoin price surge? In short, what determines the longer term price of Bitcoin?
Will There Be a Strategic Bitcoin Stockpile?
Folks in the Bitcoin world have encouraged Trump to create a strategic stockpile of Bitcoin similar to US gold reserves. The US has the largest gold reserves at more than 8,000 metric tons. That comes to about $50 million per ton or about $400 billion worth of gold reserves. The current value of all Bitcoin currently in existence is about $2 trillion. Thus a Bitcoin strategic reserve equal in value to US gold reserves would require the US to purchase one fifth of all existing Bitcoin.
The rationale for gold reserves is to have a hedge against inflation. When the Fed raised rates to fight inflation gold fell by ten percent. At the same time Bitcoin fell by seventy-five percent. Such is the risk involved with commodities that are meant to hold their value over the years.
Folks who own lots of Bitcoin would love to see the US start buying huge quantities of the cryptocurrency as that would drive the price of Bitcoin higher and higher. Whether or not there will be a strategic Bitcoin reserve remains to be seen.
Bitcoin Has a Fixed Upper Limit
The rationale for Bitcoin as a hedge against inflation is that its internal programming sets the total number at twenty-one million of which nearly twenty million already exist. This contrasts with the dollar, yen, euro, and other major currencies of which nations can always create more by running a printing press or with a keystroke at the Federal Reserve. However, when the crypto market collapsed during crypto winter nobody was creating more and more Bitcoin. Rather, the dollar went up due to higher interest rates and all cryptocurrencies, except stablecoins, fell. With no current surge in inflation in sight there is no inflation-related reason for Bitcoin’s recent surge. Rather, it appears to be based on speculation about fewer regulations causing an increase in Bitcoin and other crypto value.
The Economy Under a Trump Administration
Trump’s electoral win was largely about the economy. People were angry about higher prices. A valid concern at this point is that Trump wants to put high tariffs on virtually all imported goods, especially from China but also NAFTA members Mexico and Canada as well as long term European trading partners. If he follows through we are likely to see higher prices across the board. If Trump follows through with mass deportations of illegal or questionably legal immigrants that will reduce the supply of labor and drive up wages which, in turn, will drive up prices. It remains to be see how Bitcoin will react to higher prices for US consumers. If the Fed responds by raising interest rates again we already know how significantly higher rates have affected Bitcoin from the experience of crypto winter!