Bitcoin: If you "bought the rumour" of Trump II, should you now be "selling the fact"?

Let’s face it: economists like me (and Chancellor Rachel Reeves) generally have a terrible track-record when it comes to the rise of Crypto.

In the wake of the Global Financial Crisis in 2009, many people thought that the “Money Printing” operations (aka Quantitative Easing) set in motion by Central Banks to rescue their domestic banking systems would progressively devalue the currencies being thereby printed (US dollars and Pounds sterling, most notably), with much higher prices of goods (relative to all those extra dollars and pounds ‘in circulation’) being the tangible result (aka high inflation). After all, this is what happened in Weimar Germany in the early-1920s, didn't it (see endnote for why Weimar Germany was different in at least one important way)?

But things didn’t quite turn out this way so far, obviously.

Or did they? Because also in 2009, Bitcoin was launched thanks to the efforts of the still elusive Satoshi Nakamoto. And if you think for a minute about how much US dollar cash it would take to buy such a Bitcoin, it was a dime or even less in 2009, whereas today you would need wheelbarrows of physical cash to buy one (for anyone new to hyper-inflation, people wheeling around tatty wads of devalued cash in wheelbarrows is a tell-tale sign that one is underway).

If it wasn’t for the fact that the price of goods and services (priced in dollars and pounds) never adjusted in response to all the post-Crisis money-printing, Bitcoin would have won the day, fair and square. But the price of goods and services in dollars and pounds never adjusted. And in this way, of course, the case for or against Bitcoin continues (some of the biggest speculative episodes in history have taken a long old time to play out, just to note).

When I look at the price history of Bitcoin (see Figure 1), the thing I see foremost is an index of geopolitical stress, with a couple of upward moves/spikes: i) in the latter stages of the Covid pandemic and probably also on account of the volatile Trump/Biden handover; ii) in the wake of Russia’s invasion of Ukraine; and iii) up on the impending/actual re-election of President Donald Trump.

Figure 1

But where the recent rise (doubling, in fact) of Bitcoin might be an understandable “Buy the rumour” price-action in anticipation of last November's US election, the actual inauguration of President Donald Trump II next week might be about to be a textbook case of “Sell the fact”, at least for Bitcoin, and perhaps especially if the newly reinstated President Trump delivers on his commitment to help end the War in Ukraine to the satisfaction of at least some people. Heck – President Trump hasn’t even taken the oath of office yet, and already there is a new ceasefire in place between Israel and Hamas. Of course, we'll also see in time what happens to all the sabre-rattling on trade and tariffs, though here too it is at least possible that the incoming President's bark ahead of taking office is going to end up being worse than his bite when he is actually sitting behind the Resolute Desk again. At least some commentators believe that the (re)new President is going to be good for US business again, just as he was eight years ago, when all the inevitable media activity is said, written and done.

Back in the world of Bitcoin, none other than JP Morgan CEO Jamie Dimon (re-)expressed his ongoing scepticism earlier this week regarding its fundamental value, which he intimated remained the predominant preserve of “sex traffickers, money launderers, ransomware”. I’ll be honest – I also still don’t get the case for Bitcoin as a mainstream instrument for the long haul. Trying to be even-handed: it doesn't pay a dividend or coupon (like bonds and equities); it has no physical use per se (like other commodities); whereas at least (if its proponents are right) it is secure from government tampering, devaluation or confiscation; and maybe its price is a useful barometer of something like geopolitical risk that its investors believe they can foretell future movements of and therefore trade profitably. Also in time, Central Banks probably will take the plunge with digital money themselves, in at least some form (thereby providing at least a modicum of competition).

But even if you do trade or hold Crypto now in whatever form, you might still stop and pause at the thought that when President Donald Trump takes the oath of office next week, it might also mark the point (give or take a few weeks) at which the current Bitcoin euphoria peaks, at least for a while.

?

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(By the way, if you’re still wondering about Weimar Germany, most people think that policy-makers were much more wilful about destroying the value of their own currency in that case because they wanted the value of the World War I reparations they were obligated to pay to be worthless to the recipients).