Bitcoin rally faces Trump’s changing crypto business headwinds, experts say
Key receivers
Bitcoin experienced its worst weekly performance due to the strong dollar and Trump's potential tariff plans. Despite the short-term challenges, the long-term structural headwinds for Bitcoin and digital assets remain intact.
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In the year Bitcoin's rally, which surged more than 45 percent after the Nov. 5 presidential election, has already lost steam. Analysts expect more unrest as President Trump's proposed tariff plans and strong employment figures push up bond yields, strengthen the dollar and pressure digital assets.
“Bitcoin's problem right now is a strong dollar,” Zack Pandle, head of research at Grayscale Investments, told CNBC, adding that the Fed's latest signal has helped the dollar strengthen somewhat.
According to CoinGecko data this week, Bitcoin returned to $102,000 on Monday. However, the rally was short-lived; The major crypto asset fell below $97,000 the next day, extending its slide into the weekend.
“The decline over the past two days is mainly due to the market realizing that not all of Trump's policy agenda is positive for Bitcoin,” Pandle said of the latest decline, per Market.
Trump is considering declaring a national economic emergency to facilitate his plan to implement universal tariffs, CNN reported Wednesday. This coupled with economic policies creates various inflationary pressures. As of now, no final decision has been made regarding this statement.
Despite initial optimism regarding the Trump administration's pro-crypto environment, contrary signals regarding the rate of tariffs could create volatility and negatively impact risk assets such as Bitcoin.
Continued high interest rates
Stronger-than-expected payrolls numbers in December 2024 suggest there may be less urgency for the Fed to cut rates to stimulate the economy. Following the report, investors lowered their expectations of an imminent interest rate cut.
According to the latest data from the CME FedWatch Tool, market participants are leaning toward a 97 percent chance that the Fed will keep interest rates unchanged at its Jan. 28-29 meeting.
The Fed cut rates by 25 basis points last month, but sent a hawkish message of a cautious approach going forward. The central bank has forecast just two rate cuts this year, with further reductions due to past inflation and economic conditions.
With a cautious Fed and doubts surrounding Trump's economic agenda, “while there are no long-term structural headwinds for Bitcoin and digital assets, risk assets may face stress in the near term,” said Alex Thorne, head of research at Galaxy Digital. .
Pro-crypto legislation may take some time.
JPMorgan analyst Kenneth Worthington said potential positive effects from pro-crypto legislation may not materialize quickly as Congress is expected to prioritize non-crypto issues in the next three months.
Yet, Worthington is confident that Congress will eventually shift its focus to digital assets and pass important crypto-related legislation such as stablecoins and market structures.
The New York Digital Investment Group (NYDIG) takes a similar view.
In a recent report, NYDIG head of research Greg Cipolaro pointed out that rapid changes in crypto policy are unlikely. He points to various government processes, such as official appointments and confirmations, that can delay the implementation of new policies.
The analyst noted that while Trump's potential appointees are generally positive toward digital assets, other legislative priorities may take precedence.
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