The Trump effect: Bitcoin’s wild ride takes a breather

The Bitcoin market, ablaze with speculative fervor following Donald Trump’s election victory, is experiencing a period of relative calm as investors await concrete policy developments.

The cryptocurrency’s meteoric rise, fueled by Trump’s pro-crypto stance, appears to be moderating, prompting traders to reassess their positions.

A pause in the ascent: Bitcoin price stabilizes

After reaching a record high of nearly $93,500 on Wednesday, Bitcoin retreated below $87,000 on Friday, influenced in part by Federal Reserve Chair Jerome Powell’s remarks downplaying the urgency of interest rate cuts.

This slight pullback suggests a potential shift in market sentiment, as investors exercise caution amidst lingering uncertainties.

The cooling trend is also evident in the Bitcoin derivatives market. K33 Research observes a decline in the premium paid for CME-listed Bitcoin futures contracts compared to the spot market price.

These contracts are frequently used by US institutional investors, and the shrinking premium may signal a more conservative approach to Bitcoin investment.

Further reinforcing this sentiment, Amberdata reports a significant 24-hour increase in open interest for bearish options with a strike price of $80,000.

“Markets seems to be cooling down,” observes Vetle Lunde, head of research at K33.

Lunde points to the narrowing futures premium as “a subtle hint of moderating risk profiles.”

Trump’s pro-crypto promises: a catalyst for growth

Bitcoin’s impressive 30% surge since the November 5th election is largely attributed to Trump’s unexpected embrace of the cryptocurrency.

His campaign promises include establishing a favorable regulatory environment for crypto, creating a strategic Bitcoin reserve, and positioning the US as a global hub for the industry.

This pro-crypto pivot, a departure from his earlier skepticism, followed substantial lobbying efforts by digital asset firms during the election campaign.

Gauging the impact: from promises to policy

Despite the initial market enthusiasm, questions remain about the practicality and timeline of Trump’s ambitious crypto agenda.

Investors are now keenly watching for concrete policy announcements that will clarify the regulatory landscape and determine the long-term trajectory of Bitcoin’s growth.

The post-election period has witnessed a significant influx of capital into US spot-Bitcoin exchange-traded funds (ETFs).

A net $4.3 billion has flowed into these funds since Election Day, bringing their total assets to approximately $93 billion, according to data compiled by Bloomberg.

This surge in investment reflects the growing mainstream acceptance of Bitcoin and the anticipation of further growth under a Trump administration.

Navigating volatility: the path ahead

The current market dynamics are characterized by heightened volatility and uncertainty. James Davies, CEO of Crypto Valley Exchange, an on-chain futures and options trading platform, characterizes the current environment as “all pure speculative trading right now.”

He advises investors to “expect lots of volatility and a lack of clear signals for a while, whilst we wait for policy announcements in the US.”

Davies highlights $90,000 as a critical resistance level to watch, a benchmark that will indicate whether Bitcoin’s upward momentum can be sustained.

Data from Deribit reveals a high concentration of bullish Bitcoin options bets targeting a $100,000 strike price, suggesting continued optimism among some investors.

Market fluctuations and broader trends

As of Friday morning in London, Bitcoin was trading at $87,740.

Other cryptocurrencies, including Ether and Dogecoin, experienced mixed performance, mirroring a broader market trend of reduced risk appetite as traders reassessed their expectations for Fed rate cuts in light of Powell’s comments.

The overall cryptocurrency market appears to be entering a period of consolidation, with investors seeking clarity on regulatory developments and the long-term implications of Trump’s pro-crypto policies.