Bitcoin declined over the weekend, the drop was the largest since the US presidential election, amid concerns about the global markets. Investors are assessing the impact of Donald Trump's election as president and his promise to introduce favorable crypto policies, including the potential creation of a dedicated cryptocurrency reserve in the United States.
Bitcoin reached its lowest, dropping by nearly 3% on Saturday and Sunday. Then, it rose to $90,100 early Monday morning. The crypto-asset has rallied more than 30% since Election Day on November 5. Notably due to positive expectations of more liberal policies toward cryptocurrencies in the new administration.
As per the market analysts, Bitcoin's rally was "overheated" following the election. IG Australia's Tony Sycamore highlighted that the price had factored in much of the anticipated good news. Regulatory clarity and potential policy shifts have fueled expectations. Moreover, uncertainties linger, such as the feasibility of Trump's proposed Bitcoin stockpile.
Donald Trump's administration has the potential to embrace a collaborative-regulatory approach rather than enforcement-oriented policies toward cryptocurrencies. According to JPMorgan strategists, such a change could lead to using digital assets in traditional financial systems.
Trump has proposed creating a Bitcoin reserve, creating a crypto-friendly America, and appointing a new head of the SEC. Some of these policies benefit the industry. However, according to JPMorgan's strategists, the probability of creating a national Bitcoin reserve remains low.
Furthermore, the market expects approval for more cryptocurrency exchange-traded funds (ETFs). ETFs directly investing in Bitcoin saw $4.7 billion in inflows between Nov 6 and Nov 13. However, $771 million in outflows last Thursday and Friday showed signs of some speculative buying.
Despite the optimism, Macroeconomic factors affect Bitcoin: There are inflation threats from potential trade tariffs and deficit spending in the Trump administration, which could shift Federal Reserve policy. Market participants have started to refrain from demanding lower interest rates, which would limit liquidity in speculative markets like cryptocurrency.