Cryptocurrency's Mainstream Surge Under Trump: A Double-Edged Sword for Investors

Cryptocurrency Market under Trump

As the United States gears up for Donald Trump’s inauguration on January 20, all eyes are on the cryptocurrency markets. Following Bitcoin’s historic price surge to $100,000 in December 2024, the cryptocurrency community is buzzing with anticipation about Trump’s promise to establish the US as the “crypto capital of the planet.” Analysts predict Bitcoin’s price could soar between $78,000 and $250,000 in 2025.

The Allure of Speculative Investments

While blockchain technology offers vast applications beyond crypto payments, the price surges of Bitcoin, Ethereum, and various meme coins dominate public attention. Investors are often driven by the prospect of short-term profits rather than the asset’s underlying value. Meme coins, heavily influenced by social media culture, often lack substantial utility, leading to highly speculative investments.

Institutional Interest and Regulatory Changes

With expectations for a more favorable regulatory environment under the Trump administration, institutional interest in cryptocurrencies is rising. Major players like BlackRock are diving into the crypto derivatives market, enhancing liquidity and attracting more investors. However, this speculative nature raises concerns about potential market bubbles, reminiscent of the dotcom era.

Risks of Financial Contagion

Financial bubbles can lead to significant market collapses, triggering a contagion effect across various sectors. Recent events like the Terra Luna and FTX collapses highlight the interconnected vulnerabilities between cryptocurrencies and traditional finance, as seen with Silicon Valley Bank’s bankruptcy in 2023. The collapse of major crypto firms can have far-reaching impacts on traditional markets, with investors facing swift sell-offs at the first sign of trouble.

The Role of Influencers in Crypto Promotion

Influential figures like Elon Musk have significantly impacted meme coin prices, often leading to pump-and-dump schemes. The SEC has initiated investigations into celebrities promoting cryptocurrencies without disclosing their financial interests. As the regulatory landscape shifts, the crypto community is concerned about the potential for increased market manipulation and a lack of consumer protection.

A Step Back in Financial Freedom

While easing regulations might seem beneficial for crypto asset prices, it could ultimately hinder the pursuit of transparency and accountability in the financial sector. Strong political endorsements of crypto could undermine its decentralized ethos, leaving investors vulnerable to financial losses.

In 2025, the crypto market is poised to go mainstream, but investors should remain cautious of the inherent risks and challenges that lie ahead.

Larisa Yarovaya is an associate professor of finance and director of the Centre for Digital Finance at Southampton Business School.