Bitcoin surged to another record high on 20 January, hitting around $109,000 as Donald Trump was sworn in for a second term as US president. The cryptocurrency has since fallen back to around $106,000.
Investors are bullish about what a Trump presidency could mean for the asset after he hinted at the possibility of a “strategic Bitcoin reserve” while campaigning. The new president has also indicated that he could usher in a more friendly regulatory environment for cryptocurrencies.
“The crypto markets have been riding the FOMO waves, with speculators fearful of missing out on the euphoria sparked for coins and tokens,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
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“With both the president and the first lady launching meme coins just before the inauguration, it's being taken as a sign that Trump’s pledge to make the US the Bitcoin capital of the world will be honoured,” she added.
At the time of writing, the Bitcoin price is up almost 11% over the past month and around 155% over the past year. It has enjoyed a tremendous bull run in recent months, crossing the $80,000 milestone in November before surging past $100,000 less than a month later.
Despite this, the asset remains largely unregulated and highly volatile, which means there could be quick and major changes in its price. This has led some to question how long the bull market can continue – and whether it is worth the risk in the first place.
Will Bitcoin continue to rise?
With Bitcoin having already crossed the $100,000 threshold and neared $110,000, the next psychological landmark could be $120,000. Nobody knows how long this will take, if indeed Bitcoin does continue to rise.
A less restrictive regulatory environment could give the asset class a boost. The former chair of the Securities and Exchange Commission (SEC), Gary Gesler, cracked down on crypto during his tenure, bringing more than 100 actions against crypto firms, according to CNBC.
During the election campaign, Trump said he would sack Gesler. The former SEC chair stepped down on 20 January when Joe Biden’s term as president came to an end. Trump has now appointed Republican SEC member Mark Uyeda to act as interim chair.
Longer term, Trump has said he will nominate crypto-friendly Paul Atkins to fill the role. Trump formerly said on social media that Atkins “recognises that digital assets and other innovations are crucial to Making America Greater than Ever Before”.
A report from Reuters says that acting chair Uyeda and another SEC commissioner, Hester Peirce, are “expected to kick-start a cryptocurrency policy overhaul as early as this week”.
Trump’s U-turn on crypto
Trump’s positive stance on crypto is a fairly recent pivot – probably driven by political expedience and the rise of the “crypto voter”. In 2021, he called Bitcoin a “scam” which could affect the value of the US dollar. More recently, however, he said he wanted to turn the US into the “crypto capital of the planet”.
Trump also made some noise during the election campaign about crypto’s potential as a future reserve currency. Proponents of this include Republican senator Cynthia Lummis, who introduced a bill to the Senate in July proposing a strategic Bitcoin reserve.
The Bitcoin Policy Institute, a US think tank, says that Bitcoin's “fixed supply and decentralized nature offer a unique complement to traditional monetary reserve assets such as gold and Treasury securities”. Developments one way or the other with this so-called “strategic reserve” could drive the Bitcoin price.
During Trump’s second term, “detail is also expected about plans to increase US dominance in Bitcoin mining and gain greater access to the blockspace to increase transaction capacity for US individuals and companies,” Streeter said.
"There are also expectations that crypto will be brought more into the financial mainstream, with clearer rules about how individuals and firms can trade such assets," she added.
While crypto remains a highly speculative asset class, these developments are making it more difficult to ignore and many institutional investors are starting to show interest.
Should you invest in Bitcoin?
Bitcoin and other cryptocurrencies are largely unregulated and can be subject to wild price swings and volatility. This means you can make large gains but also devastating losses.
There are very few market fundamentals behind them beyond supply and demand. For example, one of the factors that has been pushing the Bitcoin price higher over the past year has been its adoption into some mainstream investment products in the US, after the SEC authorised the first spot Bitcoin ETFs back in January.
“Bitcoin doesn’t have any earnings and doesn’t pay an income, so price action is largely driven by sentiment,” says Laith Khalaf, head of investment analysis at AJ Bell. “If you buy some, you’re relying on someone paying more than you further down the line to turn a profit.”
He adds: “While that’s true of shares in companies too, earnings in the real economy provide an anchor for sentiment to coalesce around. Even with this stabilising force, equity markets can be choppy enough.”
The Financial Conduct Authority (FCA) has warned that cryptocurrency investors should be prepared to lose all their money. It isn’t a good asset for beginners and should not form a core part of your portfolio.
If you understand the risks and are still keen to have some exposure, you could consider a small allocation as part of a broadly-diversified portfolio. Make sure you use a recognised trading platform and be wary of crypto scams.
While cryptocurrencies aren't regulated, platforms that let you buy and sell them should be approved for anti-money laundering purposes by the FCA and should appear on its register of cryptoasset firms.
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