Real Test for Cryptos After Trump Euphoria, BTC All-Time High
The week that went by was all about the 'Crypto Inaugural ball' ahead of Donald Trump's actual inauguration ceremony on Monday and his $TRUMP memecoin.
Bitcoin is regaining momentum following a new peak on Monday, driven by the inauguration surge ahead of Trump taking office for the second time later today.
A pro-crypto administration is a good recipe for Bitcoin.
Last week, a general uptick in riskier assets, including cryptos, was in response to encouraging US inflation figures, which rekindled speculation about sooner interest-rate cuts from the Federal Reserve this year.
With a 13% increase since Sunday, the market cap leader in cryptos marked its best weekly gain since the week of November's elections, achieving a new all-time high.
Although Bitcoin's value has fallen three out of the last four weeks, the leading crypto hit $109,356 ahead of Trump's inauguration.
Still, the anticipated crypto-specific triggers have redirected traders' attention from macro anxieties, while the PPI and CPI eased misses.
The immediate aftermath of Trump's victory in the US presidential election in November was a market boom marked by skyrocketing stocks, a stronger dollar, and a substantial spike in Bitcoin.
But only a handful of those deals are still in play, and the Republican is almost ready to run for president again on Monday.
At first, the reversal was seen in the stock market. The S&P 500 Index lost a lot of its "Trump bump" when investors began to worry about the effects of the new administration's policies and the Federal Reserve's plans to lower interest rates on stock prices.
Since late November, after initially flattening, the Treasury yield curve has steepened considerably.
At the same time, the dollar and Bitcoin have kept their gains, barring a few whiplash moves.
The inauguration of Trump, however, marks the beginning of the true test for these wagers.
Most people are worried that the tariffs will cause the administration's intentions to escalate into another protracted and uncertain trade war similar to the one he presided over in his first term.
The impact of immigration policy on the US economy is a major concern for Wall Street professionals.
They are also worried about the potential for increased geopolitical tensions, as Trump has previously targeted long-standing US allies such as Europe, Canada, and Mexico.
What Each Asset Did Since Trump's Win
Stocks
Certain troubled areas of the stock market, especially those involving small-capitalization enterprises, quickly showed signs of the early rush of optimism around Trump.
The day after the election, the Russell 2000 Index had its most notable session in two years, surging 5.8%.
The reasoning was simple: The industry that typically gets most of its revenue from inside the country would benefit most from the new administration's restrictive trade policy.
The excitement, though, quickly faded. From November 5 to 25, the index jumped 8%, but it lost a lot of ground in the weeks that followed.
Since many of these stocks aren't very lucrative or even losing money, they need funding to stay afloat, and high interest rates make things worse.
After Trump's election, bank stocks surged on his promise to loosen rules on the financial sector.
Between November 5 and November 25, the KBW Bank Index reached a 52-week high, an increase of more than 14%. A subsequent loss of steam led to a 1.8% drop by Friday.
Trump's "drill-baby-drill" stance on oil and gas production caused energy sector shares to jump after the election.
From Election Day to November 22, the S&P 500 Energy Index rose 6.5%, with a 3.5% increase on November 6 being its most notable session in a year.
Concerns about oversupply, tariffs, and economic growth caused it to fall by 3.2% since then.
Successful stock market transactions were marked in industries where investors understand the situation well.
The majority of the profits made by cryptocurrency-related stocks have been retained.
Next, we have Tesla. Stocks in the electric vehicle manufacturer has surged 70% since Trump's victory, even though the next president is notoriously skeptical of EVs.
That Elon Musk's close relationship with the current administration will help the firm achieve its goal of developing fully autonomous vehicles is the primary claim.
Currencies
A long dollar position, based on large tariffs and the inflationary potential of the expected loose fiscal policies of the Trump administration, was the purest form of Trump's pre-election trade.
In the ten weeks after the election, a Bloomberg dollar index has increased by 5%, similar to the gains seen after Trump's 2016 victory.
The change is backed by the fact that global currencies like the euro and the Canadian dollar, which are perceived as being vulnerable at the same time, are vulnerable to Trump's economic policies.
This was the result that Wall Street wanted the most. In the case of a Trump victory, analysts at JPMorgan Chase, headed by Meera Chandan, predicted that the euro might fall to parity in value.
Skylar Montgomery Koning, an FX strategist at Barclays Capital, suggested that the Canadian dollar might fall to values seen during the pandemic.
This quarter, Chandan and her colleagues now expect the euro to trade below parity.
Since Trump's victory, the majority of developing market currencies have lost value.
Since Election Day, the MSCI index has fallen 2.2%, with the European currency and the South African rand leading the decline.
The Mexican peso outperformed most of its 31 major equivalents tracked by Bloomberg, depreciating 3.4% versus the dollar since the election, making it the favorite currency for speculators to short before the vote.
When investors wait for the Fed to announce when they will cut interest rates, the peso gains relative strength because they believe Mexican officials will be more cautious.
Simultaneously, the onshore and offshore trading of the Chinese yuan versus the dollar has declined by over 3% since November 5 due to concerns over tariffs and an increasing yield difference between US and Chinese government bonds.
Following a peak in early December, depreciation forecasts have been revised downward, and the People's Bank of China has implemented several steps to bolster the yuan.
Treasury Rates
The yield curve was expected to steepen following a Trump victory and a Republican sweep owing to policy efforts that would be seen as pushing prices up and putting pressure on long-term US debt.
In the run-up to Trump's inauguration, longer-term Treasuries have fallen in price, and the difference between the rates on 10-year and two-year notes has widened to about 34 basis points, approaching the highest level since early 2022.
Additionally, short-term rates have been affected by robust US economic statistics and the lack of clarity surrounding Trump's goals.
Presently, swaps traders are predicting that the Fed will only cut interest rates by a quarter point this year. About six cuts were in their plans before the election.
In today's markets, uncertainty is the only constant. Treasury yields fell sharply across the board last week as rates traders saw a monthly core inflation report that was less than expected.
Crypto
Despite his previous criticism of cryptocurrencies, including calling Bitcoin "seems like a scam," Trump has suddenly come out strongly in favour of the crypto business.
Bloomberg reports that people familiar with the matter have told them that he plans to bring in bitcoin policy experts and issue an executive order emphasizing the importance of the topic. It is believed that he would set up a Bitcoin reserve and loosen regulations.
With Bitcoin reaching a high in mid-December and increasing in value by more than 50% from its value on November 5, crypto assets have seen a considerable surge since the election.
After the vote, the Bloomberg Galaxy Crypto Index jumped 11% and has since climbed another 29%.
Elsewhere
Events
BRN Joins Money FM 89.3's 'Money Matters: The Wealth Tracker' (5:10 pm SGT on 23 January)
BRN analyst Valentin Fournier will discuss how the crypto markets are expected to shape up in 2025 on Money FM 89.3's Wealth Tracker segment.
The discussion will explore the dynamic landscape of digital assets in 2024, focusing on key growth periods in March and November and their influence on investor expectations for 2025.
Speaking to host Hongbin Jeong, Fournier will evaluate whether opportunities remain for investing in digital assets, alongside key picks and associated risks for navigating this evolving market.
Tune in here.
Consensus (Hong Kong, 18-20 February)
Consensus is heading to Hong Kong, bringing together the industry’s most important voices from East and West for pivotal conversations and deal-making opportunities.
Consensus Hong Kong convenes global leaders in tech and finance to debate pressing issues, announce key developments and deals, and share their visions for the future.
Use promo code BLOCKDESK20 at checkout for a 20% discount on tickets here.
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