Bitcoin has soared to an all-time price high, but will it continue? Advocates of the world’s largest cryptocurrency hope its value will continue to soar when Donald Trump returns to the White House.
After the price of bitcoin surged from approximately US$69,000 (£54,000) the day before the election on November 5 to nearly US$100,000 now. Bitcoiners are keeping their eyes focused on what happens next in US politics.
Small wonder. As a candidate, Trump pledged to make the US the “crypto capital of the planet” and said he would back a bitcoin strategic reserve, which would order the US to purchase and hold bitcoin for an indefinite amount of time.
Trump even suggested that the US might one day pay off its national debt in cryptocurrency. Many of Trump’s future cabinet members and inner circle are reportedly pro-crypto, including Robert F. Kennedy Jr., who has said he holds “most” of his net worth in bitcoin.
With a bullish outlook, other Trump-aligned politicians are jumping on the Bitcoin bandwagon. Republican Senator Cynthia Lummis of Wyoming has proposed the Bitcoin Act of 2024, which would increase the stash of US government-owned bitcoin and potentially shore up US supremacy in a budding geopolitical competition to horde the asset.
The US holds roughly 203,000 bitcoin, or about US$21 billion, which it has largely accumulated through seizures from illicit holdings.
It’s not just Washington getting into the act. In Texas, Dennis Porter, CEO of Satoshi Act Fund, a pro-bitcoin non-profit, recently tweeted that he is in “discussions” to help introduce a bitcoin strategic reserve in the lone star state.
Pennsylvania has also passed a new bitcoin “rights bill” and floated creating a strategic reserve. Some think this is game theory playing out. As states rush to buy bitcoin, it could create a “race to the top” that forces other government entities to join the blockchain.
What’s driving bitcoin higher?
Aside from politicians’ promises, a number of other reasons explain why many bitcoiners are poising themselves for a Trump-fuelled bull run.
One is the expectation that the US Federal Reserve will keep on printing money for the foreseeable future to finance America’s debt, which is currently about US$36 trillion and growing. Because the supply of bitcoin is finite – there will only ever be 21 million mined – it is often considered a hedge against runaway inflation. More available money funnelling into the scarce asset will necessarily drive up bitcoin’s price.
Although numbers vary, one recent analysis by the non-partisan Committee for a Responsible Federal Budget estimated that Trump’s economic proposals could balloon the federal debt by up to US$15 trillion over ten years. While leaders of the new Department of Government Efficiency, a consulting group that Trump is planning to create, have promised to “drain the swamp,” sceptics question if that’s possible when spending cuts on debt servicing, defence and entitlements such as social security and Medicare are all off the table. As an expanding supply of total dollars finds its way into finite assets like bitcoin, it becomes more expensive for consumers to buy.
Another reason for bitcoin bullishness is that the Trump administration is expected to offer more regulatory clarity over the crypto industry. This doesn’t necessarily mean more deregulation, but rather outlining clearer “rules of the road” for how individuals and firms can trade crypto assets.
Many bitcoiners, for example, have seen Securities and Exchange Commission (SEC) chairman Gary Gensler, who once taught a class on blockchain technology at Massachusetts Institute of Technology, as bad for crypto and quick to engage in arbitrary enforcement of SEC regulations.
Gensler will step down down from his role on January 20 of next year, and a new Trump-appointed SEC chairman is likely to be more intent on expanding the crypto sector.
A final variable pulling the price of bitcoin higher is greater institutional adoption by financial investment advisories and banks, pegged to recent SEC rulings. Earlier this year, after losing a court battle in 2023, the SEC was essentially compelled to approve “spot” bitcoin exchange-traded funds (ETFs), which are investment instruments that track bitcoin’s market price.
These ETFs, more readily accessible to corporate as well as individual investors, have brought financial juggernauts such as Fidelity and BlackRock into the bitcoin space, signalling mainstream acceptance of the cryptocurrency. BlackRock CEO Larry Fink, for example, has called bitcoin “digital gold” and a “legitimate” financial commodity.
A partisan issue?
A looming question about bitcoin is the degree to which it remains a partisan issue. While Republicans have rallied behind bitcoin as part of an economic “freedom” agenda, many high-ranking Democrats have been more hostile. For instance, Massachusetts Senator Elizabeth Warren has been described as carrying out an “anti-crypocurrency crusade”. However, other Democrats like New York Senator Chuck Schumer have sought to reduce federal restrictions on trading crypto assets.
Republicans are trying to exploit their perceived advantage on the issue. Trump’s pick for Treasury Secretary Scott Bessent, for example, has insisted that the “crypto economy is here to stay”.
Meanwhile, chief executives of major crypto companies including Ripple, Kraken and Circle are jockeying for a seat in Trump’s new proposed crypto council, which will advise the White House on policy related to crypto assets.
If 2024 was the “crypto election”, the big unknown is whether Trump will really champion digital assets, or dash the hopes (and wallets) of bitcoiners everywhere.
Thomas Gift holds shares in Bitcoin financial instruments.