Historic Election for Crypto

The recent U.S. presidential election has significant implications for the crypto landscape. As markets react to anticipated inflationary pressures and pro-growth policies, I explore how these changes and expected reforms pave the way for broader adoption and integration of digital assets into mainstream finance.

Higher Inflation Risk

Donald Trump’s election win brings new expectations for inflation as markets anticipate policies that lead to both growth and potential price increases. A likely mix of tax cuts, infrastructure spending, and relaxed regulations will boost economic activity, which pushes inflation higher if demand increases significantly.

Trump’s administration has also signaled support for U.S. energy production, which stabilizes oil prices and counteracts some inflationary pressures from energy. However, heightened government spending on infrastructure and defense may lead to higher fiscal deficits which historically can put upward pressure on inflation. On the monetary front, Trump's stance will influence the Federal Reserve’s approach, especially if he favors looser credit to support growth. The new administration will push for further tariffs or trade barriers, and costs of imported goods will rise, adding to inflation.

Overall, the inflation outlook under Trump could be shaped by a combination of increased domestic spending and targeted support for growth-intensive sectors. As a result, I expect higher treasury yields to reflect the market's demand for more return to compensate for inflation risk.

“Risk-on”

Financial markets reacted quickly, with stock indices seeing initial gains as investors anticipated Trump's policies favor tax cuts, deregulation, and business-friendly measures. The bond market saw increased activity as investors recalibrated expectations for interest rates and federal spending.

ETFs saw significant inflows across various sectors, with major funds tracking the S&P 500 index (like SPDR’s SPY and Vanguard’s VOO) attracting over $1 billion in fresh investments. High-yield bonds saw almost $800 million in new investments on election night as investors leaned into riskier assets, expecting higher returns in a pro-growth economy. This surge represents one of the largest single-day investments in high-yield ETFs this year.

Bitcoin hit a historic high of nearly $75,000 following Trump’s victory, up 8% overnight. I see Trump’s pro-crypto stance as a turning point for digital assets. I expect a further rally, projecting a target of $90,000 by year end and potentially $200,000 by 2025.

Record Inflows into Bitcoin ETFs

The iShares Bitcoin Trust (IBIT) is now the top ETF for spot Bitcoin exposure, holding $30 billion in assets after sustained inflows in recent weeks, and pulling in $2.5 billion in a day, following the election. IBIT’s rapid ascent to the top of the market has been driven by investor demand for regulated crypto investment products. This interest highlights the growing role of ETFs in making digital assets accessible to a wider audience, even as more traditional investors embrace the asset class. Inflows into IBIT and similar funds signal rising confidence that the new administration will support cryptocurrency. The total crypto market capitalization has now surged to $2.5 trillion, a milestone that reflects strong institutional and retail demand for digital assets.

Regulatory Impact

Trump’s support for crypto includes pledges to remove regulatory roadblocks. I expect a smoother path for ETFs, stablecoins, and even DeFi projects, which have faced obstacles under the current administration.

Under the Biden’s administration, due to regulatory uncertainties, many financial institutions are hesitant about accepting cryptocurrency as part of their business strategy. By creating a more defined regulatory landscape, Trump’s policies could ease these concerns, encouraging institutional players to diversify into crypto. Increased institutional interest brings additional capital into the market, enhancing its stability and maturity. This trend would also signify crypto’s acceptance into mainstream finance, reinforcing its role as a credible asset class.

Below I highlight the potential for Trump’s policies to create a more supportive and structured environment for crypto in the U.S.

1. Trump’s Plan to Replace SEC Leadership Sparks Hope for Crypto-Friendly Policies

Trump has indicated plans to replace SEC Chair Gary Gensler, who has enforced strict regulations on crypto including labeling several digital assets as securities. The proposed change is seen as a direct step toward encouraging innovation. I hope a SEC leadership shift will bring more flexible guidelines and reduced legal roadblocks, allowing U.S. based crypto firms to operate with greater confidence.

2. Potential Clarity on Stablecoin Regulations

Trump’s administration is expected to bring clearer regulations for stablecoins, addressing how these digital assets can be issued, used, and integrated into the financial system. Stablecoins, pegged to fiat currencies like the U.S. dollar, have gained immense popularity, but regulatory ambiguity has limited their potential in the U.S. market. With Trump’s support, lawmakers could pass laws defining stablecoins’ legal framework, helping issuers expand more confidently.

3. Pathway for DeFi Projects to Thrive in the U.S.

Decentralized finance (DeFi) platforms have largely operated outside the U.S. due to fears of regulatory scrutiny. Trump’s administration should establish clearer frameworks that allow DeFi projects to operate more freely within the country. This would allow innovative platforms which offer services like lending, borrowing, and trading without traditional intermediaries, to contribute to the U.S. economy. Clear guidelines would also protect users by ensuring that these platforms meet certain standards, balancing innovation with consumer protection.

4. Industry Support for Crypto-Friendly Banking Reforms

Trump has expressed interest in financial reforms that support innovation, potentially benefiting crypto-related banking activities. Currently, many crypto businesses face difficulties accessing traditional banking services due to compliance concerns. Increased bank cooperation would make it easier for crypto businesses to offer services to mainstream customers. This shift could also spur the growth of financial products that integrate crypto, bridging the gap between traditional finance and the digital asset world.

5. Stronger Protections for Crypto Consumers

While Trump’s approach is likely to promote innovation, his administration is also expected to put forth regulations that protect consumers in the crypto space. This balance could include requirements for transparency, fraud prevention, and investor education, ensuring safer participation for retail investors. Protection-oriented regulations would aim to prevent scams and enhance trust in the industry without imposing overly restrictive rules. These measures could help create a more consumer-friendly environment, promoting sustained growth.

As we, at Sylvanus, build the capabilities needed to elevate portfolio and risk management in digital assets, I hope that the positive momentum in the crypto markets surrounding the 2024 election becomes a turning point, further supercharged when the new administration takes office. I am optimistic that meaningful reforms will emerge, solidifying the framework that our maturing industry has been calling for to support digital asset adoption and expanded portfolio opportunities.

‍^{Investing in cryptocurrency involves risks including volatility and potential loss of capital; any projections mentioned reflect the author's views and are not guarantees of future performance.}