Trump Might be the Best Thing That Ever Happened to the Price of Bitcoin
Yes, Donald Trump has big and bold plans for the US economy with corporate tax cuts, encouraging the coal industry, and imposing trade tariffs on goods made in China. History will no doubt reveal the efficacy of those treatments in due course. Yet, his policies could have a positive — albeit completely unintended — effect on cryptocurrencies.
Brave New World
Trump, together with other populist strongmen, are attempting to improve their countries’ economies. The tangible result so far is that the world is a much more politically unstable place than it was just five years ago. Consider Putin in Russia, Erdogan in Turkey, Xi in China and the economic disaster to top them all — Maduro in Venezuela. The strongman outlier is Kim Jong Un. Lacking any financial resources to speak of, he doesn’t engage in monetary politics. Instead, he’s sticking to his guns, quite literally.
Barring Kim and his rockets, the geopolitical tensions are high because for all other nations money is the new missiles. You topple nations by laying economic siege, disrupting trade, ruining their economy, and undermining their currency — not by bombing them. And the casualties of a full-blown trade war will affect everybody, rich and poor alike. In the past, wealthy investors have typically been able to skirt market turmoil with some clever planning and diversification. They now find themselves with nowhere to park their assets safely. Even the man running the world’s biggest sovereign wealth fund is bracing for what’s ahead.
Welcome Bitcoin
As investors of this word are scrambling to find safe and investment worthy assets and geographies, cryptocurrencies are still suffering some teething pains. The crypto asset class is starting to grow up, and investors are taking note. Case in point, Bitcoin is at its lowest volatility in 2 years according to Coindesk.
Meanwhile, in the world of fiat, the Turkish lira has fallen 45% during 2018 and the Venezuelan reached an eye-watering 200,000% year-on-year inflation last month. China has a reputation for very heavy-handed monetary politics after absolutely hemorrhaging yuan a few years back, so that’s now a closed market. The list of economic instability, unfortunately, is much longer, mainly because of interconnectedness. When, for example, the Turkish lira falls, so do the Argentine peso, Brazilian real, South African rand, the Russian ruble, etc. While none of these countries in and of themselves are major players in the world economy, they are bellwether nations.
It’s the Economy, Stupid!
Although the above-mentioned countries all have been more than capable of shooting themselves in the foot, Trump has gleefully been lending a hand. By helping to undermine other ‘competing’ countries, the US gains — or so goes Trump’s logic. This assistance has taken different forms. In the case of China: trade sanctions, Turkey: doubling steel tariffs. Russia, of course, had to be left alone, but with the recent event of all developing countries sliding, Russia and the ruble didn’t need any help.
Now, add to the list of beleaguered countries, the list of erstwhile economic allies to the US. Support from Europe, Japan, and other economic powerhouses is now growing thinner by the minute, helped along by tweet storms and fresh GOP scandal. As Trump stated very clearly at the UN conference in September “America is governed by Americans. We reject the ideology of globalism. And we embrace the doctrine of patriotism.”
The net-net of this is that larger positions in crypto are suddenly looking increasingly attractive. Much more so that would have been expected, or even advisable, in a more stable world.
All Together Now
Protectionist politics appeal to US voters, but the price is economic aggression instead of global trade and stable economies. Trump, together with the rest of these strongmen, are well on their way to creating an effective chokehold on international trade. That threatens the world economy in an entirely new way: a synchronized downward spiral. A coordinated slide of all regions in unison is something that has never been seen before. Conventional wisdom in economics has it that regions are counter-cyclical: e.g. while south-east Asian economies are picking up, Europe is slowing down. While the Middle East economies are expanding, the US economy is slowing down, etc. Worryingly, with the world economy under siege, these counterbalancing effects between regions no longer function.
Nope, I Don’t Trust You
And speaking of an ever-thinning list of options: although the traditional safe havens for investors like gold and Swiss Francs are still available for investors, most world currencies sadly are not what they used to be, and bonds have largely lost their attractiveness.
Investors’ eyes are now circling cryptocurrencies, and in particular, the younger generation is pouncing. They have both a longer investment horizon and is inherently more comfortable with the technology and the opportunity it represents.
So, why the risky and volatile crypto instead of fiats? Trust. Or rather, the lack thereof. There are no institutions or nations involved. If you are trying to protect yourself, not from a traditional war, but from struggling states, forgoing trust is exactly what you’re looking for. And trustless transactions are at the very core of cryptocurrencies. The lack of trust is already evident. Although Trump probably doesn’t own a bunker in New Zealand, Wall Street and Silicon Valley have their bolt holes around the world ready to go.
As always, hedging & diversification is the name of the game for seasoned investor. Trump and his global henchmen are now forcing investors to take a long and serious look at crypto assets. And for the house-HODLs out there sitting on their Bitcoins: expect the value of your cryptocurrencies to inch upwards as Trump rages on.
