Bit-Trump

Over the years, Donald Trump’s positions haven’t changed much, but one place where they have changed is crypto currencies, specifically Bitcoin. The attitude change toward cryptos has been so dramatic that Bitcoin has been one of the best performing asset since his election. The iShares Bitcoin Trust (IBIT) has risen over 30% from Monday, November 4 as of this writing.

While President-elect Trump’s recent crypto venture is raising lots of questions, what is more meaningful for investors is the attitudinal shift that appears likely to come as a result of Trump’s election. At the Bitcoin 2024 Conference, back in July, Trump is quoted as saying “If elected, it will be the policy of my administration to keep 100% of all the Bitcoin the U.S. government currently holds or acquires into the future.” He added, that this would be the “core of the strategic national bitcoin stockpile.” That is a far cry from his 2019 comments that Cryptocurrencies are ‘not money’, and whose value is ‘based on thin air’.

The Biden Administration was not nearly as friendly to Bitcoin and other crypto currencies, but by the same token, they did approve spot Bitcoin ETFs, which was clearly a major step toward broad acceptance by the financial markets and the Government. The question for investors is what comes next?

Accepting President-elect Trump’s comments at face value has rarely proved to be reliable, but his 180 degree shift in position makes this case more believable. For us, that would imply at a minimum, that Bitcoin seized by the government will no longer be quickly sold. As these seizures can be large, that removes an occasional supply overhang that can affect the Bitcoin price – but that is a minor positive at best. However, if the U.S. government made the decision to form a strategic Bitcoin reserve, that could be a game changer. In light of the limited new supply of Bitcoin available through mining, and under the assumption that the Federal government would not start mining Bitcoin, the only other possibility is that the U.S. could be a buyer of Bitcoin on the open market. Obviously, if the Government intends to do that, it will be (or should be) a well-kept secret. However, the Bitcoin market appears to be discounting that possibility already.

As a currency reserve, the attraction of Bitcoin is similar to the attraction of gold. As of September, the U.S. had about $11 billion of gold in its official reserves, based on a gold price of $42.22, or almost 262 million ounces of gold. Based on a recent price of $2580/oz. that gold has a value of almost $675 billion. The country’s fiat currency reserves decline in value, much like the currency in our pocket, however, gold is appreciating in value and Bitcoin would theoretically experience a similar appreciation and be a welcome addition as the country struggles with high debt levels.

What the U.S. will do during Trump’s tenure is not clear, but what could happen to the price of Bitcoin if the U.S. starts buying, is very clear and is at least part of the reason for the rapid rise in price since the election. Maybe more important from a long-term perspective is that acceptance of Bitcoin as a reserve currency 100% legitimizes Bitcoin as a financial asset, which is something that diehard Bitcoin aficionados have been seeking for years. Bitcoin may be about to go mainstream.

Sound farfetched? Well as it turns out, the Pennsylvania House introduced a bill on Thursday – The Pennsylvania Bitcoin Strategic Reserve Act. According to Fox Business: “The prospect of Trump’s return to the White House has sparked Pennsylvania lawmakers to introduce legislation that would enable the state’s treasury to hold the world’s largest digital asset on its balance sheet as part of a broader movement to recognize Bitcoin as a store of value. The legislation comes as pro-crypto Republican Sen. Cynthia Lummis of Wyoming says she’s hoping to push through her own Bitcoin reserve bill on the national level during the first 100 days of Trump’s presidency.” There is still a long way to go for this to become reality, but the point is that the idea is already being put into motion, and Trump is not even sworn in yet.

The chart below shows Bitcoin’s recent price rise and the price is now well above the 200 day moving average (gray line). In addition, the relative strength index (RSI, at bottom) is clearly in overbought territory (above the dotted green line). If you step into the Bitcoin market here, enter at your own risk. On a pullback, Bitcoin gets more interesting.

Have a fabulous week!

What We’re Reading

Pennsylvania House introduces bill to implement a strategic bitcoin reserve

What’s next after the 2024 US election (30 min. Podcast)

What Trump’s historic election victory means for the global economy

Trump will nominate Robert F. Kennedy Jr. for HHS secretary

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All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Past performance is no guarantee of future returns.

Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that the future performance of any specific investment or investment strategy will be profitable.

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By: Adam