A Historic Election for Digital Assets
Written by Wilfred Daye, Chief Executive Officer
CEO Wilfred Daye reflects on the market impact of the 2024 election results and what this means for digital assets.
Nov 7, 2024This week’s U.S. presidential election has significant implications for the digital asset landscape. As markets react to anticipated inflationary pressures and pro-growth policies, 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 win brings new expectations for inflation, as markets anticipate policies that lead to both growth and potential price increases. His proposed mix of tax cuts, infrastructure spending, and relaxed regulations is aimed to boost economic activity, which will push inflation higher if demand increases significantly.
Trump’s administration has also signaled support for U.S. energy production, which would stabilize oil prices and counteract some inflationary pressures from energy. However, heightened government spending on infrastructure and defense may lead to higher fiscal deficits, which have historically 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 promises to push for further tariffs or trade barriers, resulting in rising costs of imported goods, 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. Stock indices saw initial gains with investors anticipating Trump's policies to 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, such as SPDR’s SPY and Vanguard’s VOO, tracking the S&P 500 index, attracting more than $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 new all-time-high of nearly $75,000 following Trump’s victory, up 8% overnight. Trump’s pro-crypto stance is a turning point for digital assets. I expect a further rally where we can see BTC reach $90,000 by year-end and potentially $200,000 by 2025.
Bitcoin Daily Prices in USD
Source: Bloomberg as of November 6, 2024.
Record Inflows into Bitcoin ETFs
iShares Bitcoin Trust (IBIT) is now the top ETF for spot Bitcoin exposure, holding $30 billion in assets after sustained inflows in recent weeks, 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 digital asset 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 the space. The total crypto market capitalization has now surged to $2.5 trillion, reflecting strong institutional and retail demand.
iShares Bitcoin Trust (IBIT) Daily Prices in USD: Nov 5 - 6, 2024
Source: Bloomberg as of November 6, 2024.
Regulatory Impact
Trump’s support for the digital asset space 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 administration, due to regulatory uncertainties, many financial institutions are hesitant about accepting digital asset investing 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 digital asset 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 digital assets in the U.S.
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 digital assets, including labeling some cryptocurrencies as securities. The proposed change is seen as a direct step toward encouraging innovation. The hope is that an SEC leadership shift will bring more flexible guidelines and reduced legal roadblocks, allowing U.S.-based digital asset firms to operate with greater confidence.
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.
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.
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 digital asset businesses face difficulties accessing traditional banking services due to compliance concerns. Increased bank cooperation would make it easier for these businesses to offer services to mainstream customers. This shift could also spur the growth of financial products that integrate digital assets, bridging the gap between traditional finance and the digital asset world.
Stronger protections for consumers: While Trump’s approach is likely to promote innovation, his administration is also expected to put forth regulations that protect consumers in the digital asset space. This balance could include requirements for transparency, fraud prevention, and investor education, ensuring safer participation for retail investors. Protection-oriented regulations aim to prevent scams and enhance trust in the industry without imposing overly restrictive rules. These measures would help create a more consumer-friendly environment, promoting sustained growth.
As the capabilities needed to elevate portfolio and risk management in digital assets continue to evolve, I hope that the positive momentum in the digital asset 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 ongoing adoption and expanded investment 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.
