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Bitcoin, which hit a record high of $126,000 on October 6th, has fallen about 30% since. Having broken both its 200-day moving average and trend line support, further downside cannot be ruled out. For context, during the 2021/'22 washout, Bitcoin dropped nearly 70% peak to trough. What is the balance of risk for Bitcoin right now? Can Donald Trump save Bitcoin? Does he want to?
Donald Trump promised during his 2024 campaign to make America the crypto capital of the world. Even after the recent sell-off, Bitcoin is still up more than 50% since its victory last November. No market is more closely identified with Trump and his economic agenda than crypto, and for good reason. Trump and his family have built up enormous personal stake in a sector that has generated billions of dollars in new wealth since he took office. In the 2024 elections, Trump received record campaign contributions from the crypto industry, which many believe have made Trump unusually attentive to his interest. So it must be asked, to what extent Bitcoin's recent decline represents a fundamental reassessment of Trump's crypto policies.
Bitcoin got a big boost in January after Trump signed an executive order that prohibits the establishment, issuance, circulation or use of a retail central bank digital currency. By banning a retail CBDC, Trump removed the only serious potential competitor to privately issue digital dollars. This was especially bullish for stable coins that are pegged to the US dollar, but improved sentiment across the entire crypto complex, including Bitcoin. In July, Trump signed into law the Guiding and Establishing National Innovation for US Bitcoins Act, known as the GENIUS Act.
The GENIUS Act created a regulatory framework for stable coins. The act establishes capital, liquidity, and risk management rules for stable coin issuers, including requiring them to hold reserves in low-risk assets, such as insured bank deposits and short-term treasuries. The crypto industry framed the GENIUS Act as bullish for the entire crypto universe, but there's another way of looking at it that is bearish for Bitcoin. Let me explain what I mean.
The GENIUS Act, by legitimating stable coins, aims to promote their use in payments. This crowds out Bitcoin's medium of exchange narrative. Indeed, since the adoption of the law, cross-border payments involving stable coins have grown rapidly, much faster than those involving Bitcoin. And this is just the beginning. Banks and credit card companies have been racing to integrate stable coins in their infrastructure. Visa now supports settlements using stable coins like USDC on various blockchains, allowing users to spend from stable coin-linked cards at its global merchant network.
A consortium of major global banks, including Bank America, Citibank, Goldman Sachs, and Deutsche Bank are exploring the development of a joint stable coin to create an industry standard for institutional settlement. The GENIUS Act has also pressured Europe in the development of a digital euro. Europe is now rushing to adopt the required legislations in 2026 to roll out a pilot in 2027.
Bitcoin is touted by its proponents as both a medium exchange as well as a store value. At least as a medium exchange, it now faces serious competition from stable coins that are destined to become the dominant digital currencies for payments.
Some people view Bitcoin as a safe haven asset given its fixed supply and decentralized nature. Whether Bitcoin truly functions as a safe haven, however, is debatable. Its extreme volatility is certainly at odds with the notion of a stable store of value. Over the past decade, Bitcoin's realized volatility has been 3 to 4 times higher than that of gold. For years, the prevailing theory was that if Bitcoin ever evolved into a major medium of exchange, its volatility would eventually decline and that this would increase its attractiveness as a store value. To the extent that Trump's GENIUS Act has dramatically reduced the chance of that ever becoming reality, it should be viewed as a clear negative for Bitcoin. Is the Bitcoin market finally waking up to this?
In a way, the GENIUS Act is quite an ingenious piece of legislation. Ostensibly, it promotes stable coins, but its real purpose is to reinforce the hegemony of the US dollar. The dollar is already the dominant currency for international trade and cross-border settlement. The GENIUS Act is likely to strengthen that dominance even further by accelerating the adoption of regulated dollar-backed stable coins as a mainstream vehicle for global payments. In effect, it extends the reach of the US dollar into the digital domain, allowing US dollar liquidity to flow across border faster, cheaper, and outside the traditional banking system, all while remaining within a US regulated framework. 99% of stable coins in the world are currently denominated in US dollar. This is why the Europeans were so alarmed by the GENIUS Act. The GENIUS Act will enhance further the privilege of the US as the issuer of the world's reserve currency, as it requires stable coins to be backed by US treasuries or US bank deposits.
In 2021, Trump called Bitcoin a scam. He said he didn't like it because it's just another currency competing against the US dollar. If you ask me, the GENIUS Act has made the dollar more competitive against Bitcoin. Maybe this is why it's called the GENIUS Act.
The new head of the Securities and Exchange Commission, Paul Atkins, earlier this week gave a speech in which he laid out his vision for the regulation of crypto assets. He made it clear that he does not view digital commodities, digital collectibles, and digital tools to be securities. While debate continues over creating a tailored regulatory regime for digital assets that are part of or sold through investment contracts, none of this would affect Bitcoin. Its decentralized issuance and lack of an identifiable promoter means that it will continue to be treated as a commodity under CFTC oversight, subject only to light supervision rather than securities-style regulation.
I'm not sure what Trump can or will do for Bitcoin during what remains of his presidency, especially given the midterm could end the legislative phase of his administration. Trump created a strategic Bitcoin reserve in March to hold the crypto assets that have been seized by the US government. The order authorizes the Treasuries and Commerce Department to develop budget-neutral strategies to acquire additional Bitcoin provided no cost to taxpayers. But this is easier said than done. It's hard to see how this could be done without congressional approval that Trump will struggle to get in an election year, even if he wanted to. Trump is also well aware that if the Republicans were to lose their congressional majorities next year, he will very likely face an impeachment trial over his and his family's crypto dealing. I think it is safe to assume that between now and the midterm, Trump will take special care not to do anything or say anything that could be seen as self-serving. Thus, I would caution against buying Bitcoin right now on the assumption of Trump riding to the rescue.
2025 has made it very clear what Bitcoin is and what it is not. With the legitimization of stablecoins, Bitcoin will never become a major payment currency. Like gold, it is just a store of value. Like gold, it pays no interest. Like gold, its supply is scarce. But unlike gold that has many uses, Bitcoin is just a financial asset. 2025 is also a reminder of the fact that reserve managers buy gold and not crypto. After the West froze Russia's reserve assets, reserve managers around the world have placed a renewed premium on physical gold, precisely because it lies beyond the reach of foreign courts, sanctioned authorities, and the Western financial infrastructure. Crypto assets sit on public blockchains. Their movement can be traced, and their access ultimately depend on private keys, which can be seized, court-ordered, or compromised. For a sovereign state, crypto lacks the geopolitical insulation that gold provides.
Bitcoin remains predominantly a fiscal and interest rate play. And one thing is clear. The US budget deficit will get bigger in 2026, while real rates are likely to fall. MAGA loved Trump and Bitcoin. The great irony is that Trump is proving to be no more interested than Biden in restraining the budget deficit, and much more interventionist in almost every way, including monetary policy. The political movement that champions Bitcoin as protection against fiscal excess and monetary manipulation voted in a president whose policies reinforce both. Talk of the MAGA movement's decline is everywhere these days. True or not, the sharp drop in Bitcoin prices could not come at a worse moment. I suspect we have not seen the bottom in Bitcoin yet. Thank you for listening.