Trump Trade 2.0: Can this Bitcoin rally last?

The Trump Trade is back, with a vengeance

This time, the impact is immediate and direct. Since winning the presidential election by a landslide, speculative capital is pouring into assets favoured by the Republican president-elect Donald Trump.

Bitcoin (BTC) is a major beneficiary of this sudden market pivot. Prices of each digital coin at the eve of the election were trading at just $68,000. But when the scale of GOP victory was flashed across newswires, Bitcoin began to surge. And it continued surging for the next six consecutive days (cryptos are traded 24 hour non-stop). New all-time highs were stamped daily; resistance after resistance toppled.

At this frantic pace of appreciation, Bitcoin may even, before the year is out, clinch the magical six-figure level of $100,000. Its gargantuan market cap of $1.7 trillion (11 Nov) already makes Bitcoin the seventh most valuable asset in the world. The ‘digital gold’ is golden indeed.

Now, looking across the other side of the screen, the real live commodity gold is in real trouble. Having risen consistently throughout the year, the yellow metal encountered sudden heavy selling after the election. Its sharp price action mirrors that of Bitcoin – but in the exact opposite direction (see below). Prices are off 7 percent. Silver, too. is being dumped into the psychological $30 support level. Unsurprisingly, most gold and silver miners suffered from a widening correction from their recent highs. Sentiment certainly changes fast in financial markets, especially sparked by major political catalysts.

Why, you may wonder, is speculative interest surging in Bitcoin post election?

What’s the Trump connection to Bitcoin?

As Republication grabbed four more seats in the senate, interests are growing on this particular bill: The Bitcoin Act (2024). The Act, sponsored by the Wyoming Senator Cynthia Lummis, is short for “Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide Act of 2024″ (full text here). 

One standout feature of the Act calls for the establishment of a ‘Strategic Bitcoin Reserve’. How many Bitcoins are we talking about in the proposed Reserve? A million Bitcoins, to be acquired over a five-year period. Now, that’s a huge investment. Remember that Bitcoin is hardwired to have a concrete limit, which stands at 21 million. If the Act is put into motion, roughly five percent of all available supply of Bitcoin will be taken out. You don’t need to be an economist to predict the massive impact of this legislation on Bitcoin.  

A rough back-of-the-envelope calculation put the cost of this proposal, assuming $80,000 per coin, at US$80 billion. Should Bitcoin price vault higher, which it certainly can, the capital outlay only increases. But the US govt already holds more than 200,000 BTC. In effect, it only requires to buy another 800,000. 

The incoming president appears sympathetic to these new plans and may grant imprimatur to the Act. Further, the president-elect appears to favour softer crypto regulations. Key personnel are slowly slotting into place.

Naturally, the crypto community rejoiced wildly at these policies. Whether or not the Act will pass soon is unknown. But very often financial prices move first. The old adage of ‘buy the rumour, sell the fact‘ still rings true in 2024.

How long will the Trump Trade persist?

After a giddy rise, naturally, many are left wondering ‘can this Bitcoin rally last?’

Unlike the first Trump administration, the various Trump Trades this time are starting from an already elevated and stretched position. Take the Nasdaq 100 (proxied by the $313 billion ETF QQQ). In 2017, the ETF traded at a mere $120. Now, it changes hand above $500 – a four-fold increase. Similarly, Tesla (TSLA), another Trump Trade favourite, was struggling back then at $17 (post split prices in 2017). Now a share fetches more than $350. The EV carmaker is worth more than $1 trillion.

The risk proposition in many Trump Trades 2.0 is completely different now. Back then, the Global Financial Crisis still cast a long shadow on the market. No such cautious attitude is found.

As for Bitcoin’s stunning rally, one commentator astutely observed that “The Race is on To Front run the U.S. Government” . The question is that nobody knows when the Act will be passed, and in what form. Much horse trading is required to get it over the line. Regulatory uncertainties remain a fact.

And the market is in a state of euphoria right now. The end-of-the-year effect (Santa Effect), Bitcoin/crypto surge, and S&P 500 at 6,000 are all reinforcing the speculative interest. Could we be in the last stage of a long bull – a phase characterised by vertical price rallies and huge interest in speculative assets? The market is certainly moving that way. Note, too, that the cautious Warren Buffett has sharply reduced its significant stake in one of the Mag-7, Apple (AAPL), and raised the cash position of Berkshire Hathaway to a staggering $325 billion. Is he anticipating a fallow period in the stock market? The old fox is a contrarian. He takes chips off the table when the odds are against him.

All in all, Trump Trades are in a rage now and the price momentum is strong. The risk to all these trades is that the administration fails to live up to the hype. But that only comes later.  For now, I would ride the trend within your risk parameters in place.