Bitcoin recovered from its biggest two-day decline since the US election in choppy trading that reflects reassessments of the impact of President-elect Donald Trump’s political agenda.
The digital asset fell almost 3% on Saturday and Sunday, before rising again to US$92,000 as of 4:05 am this Monday (18). Trump has made several pro-crypto pledges, but there are open questions about the implementation timeline and whether they are all viable – such as the creation of a Bitcoin stockpile in the US.
Bitcoin has become “overheated” after a record advance recorded since Election Day on Nov. 5, and “a lot of good news has been factored into the price,” IG Australia Pty market analyst Tony Sycamore wrote in a note.
Inflation risks
While Trump’s business-friendly stance has cheered investors in U.S. stocks and cryptocurrencies, some of the optimism is being tempered by inflation risks posed by the prospect of trade tariffs and spending to finance tax cuts.
Investors are tempering expectations of interest rate cuts from the Federal Reserve in a solid U.S. economy, a potential headwind for cryptocurrencies as liquidity conditions could influence speculative demand for digital tokens.
Trump has promised to create a user-friendly regulatory framework for digital assets, establish a strategic Bitcoin stockpile and make the US the global hub of the sector. Once skeptical of cryptocurrencies, the president-elect changed course after digital asset companies spent heavily during the election campaign to promote their interests.
Change in regulation
“Crypto legislation could soon be passed under the Trump administration, spurring a shift from regulation by enforcement to a more collaborative approach,” JPMorgan Chase & Co. strategists led by Nikolaos Panigirtzoglou wrote in a note.
Banks could have greater scope to engage with digital assets, the team said, and markets are more hopeful about approving cryptocurrency exchange-traded funds that invest in tokens other than just the main two, Bitcoin and Ether.
Regulatory clarity would be a tailwind for venture capital investments, mergers and acquisitions and initial public offerings, according to strategists. But the establishment of a Bitcoin reserve in the US is a “low probability event”, they added.
U.S. spot Bitcoin ETFs attracted a net inflow of $4.7 billion from Nov. 6-13, the day the original cryptocurrency hit an all-time high of $93,462, according to data compiled by Bloomberg. Around US$771 million came out of products on Thursday and Friday, leaving the group with total assets of US$95 billion.
