What Donald Trump’s backing means for bitcoin
The price of bitcoin hit $70,000 this week after Donald Trump promised to turn the US into the “bitcoin superpower of the world” if he is elected as president in November.
“The United States will be the crypto capital of the planet and the bitcoin superpower of the world,” Trump said, speaking to a cheering crowd at the Bitcoin Conference in Nashville last Saturday.
By Friday morning the price was $64,499, down 4.3 per cent compared with a week earlier. The price of ethereum, the world’s second largest cryptocurrency behind bitcoin, was $3,146, down 3.4 per cent.
John Plassard from the Swiss bank Mirabaud said: “If Trump gets elected it could be positive for bitcoin, but it’s not a done deal. Investors could consider buying some bitcoin now and then buying some again after the election to get an average price. But it’s a risky asset.”
The former president seems to have made a screeching u-turn in his views on cryptocurrency. “I am not a fan of bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” Trump posted on Twitter (now called X) in 2019. “Bitcoin, it just seems like a scam,” he said in an interview with the US news channel Fox Business in 2021.
However, Trump’s presidential campaign began accepting donations made in cryptocurrency in May. Investors can buy dinner with Trump at his Mar-a-Lago residence in Florida if they purchase 47 or more digital trading cards, which feature cartoon images of the former president, in a single transaction. The trading cards, which cost $99 each, are being sold as non-fungible tokens (NFTs), a type of cryptoasset. NFTs are certificates of ownership recorded on a blockchain, a type of digital ledger. Blockchains are also used to record how much of a cryptocurrency someone owns.
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Last Saturday Trump said bitcoin was a “miracle of cooperation and human achievement”. He said the US government holds 210,000 bitcoins and that he would create a “national bitcoin stockpile” if elected. The Republican senator Cynthia Lummis has since said she will introduce a bill which would require the US government to buy a million bitcoins, which would be worth about $64.5 billion at today’s price.
“If you suddenly had the US government holding bitcoin, that makes it seem more legitimate and could make it look more like a currency,” Ben Yearsley from the consultancy Fairview Investing said. “But I am still not buying it. If the price is being driven by speculation, it’s just a bubble that will burst.”
Backers of cryptocurrency say Trump’s comments are evidence that these assets are becoming more widely accepted. “It’s remarkable to see a presidential candidate addressing a bitcoin conference,” Alex Brammer from the Bitcoin Today Coalition, a US cyptoasset advocacy group, said. “I think he has made a pragmatic political calculation that a significant proportion of the electorate now cares about bitcoin.”
In January the Securities and Exchange Commission (SEC), the US financial regulator, approved the sale of exchange-traded funds (ETFs) tracking the daily price of bitcoin for the first time. ETFs are a type of investment fund are listed on a stock exchange and can be traded instantly. They usually aim to replicate the performance of a broad index, such as the FTSE 100. A bitcoin spot ETF invests in bitcoin, giving investors a regulated way to gain exposure without needing to hold the cyrptocurrency directly.
About $17.7 billion has poured into bitcoin spot ETFs since they started trading, according to the investment firm Coinshares. Retail investors in the UK cannot yet buy these products.
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“Trump might well do something to help crypto firms if he gets elected, but there are a lot of ifs,” Laith Khalaf from the investment platform AJ Bell said. “Bitcoin remains a volatile currency. It may not ultimately be adopted in any widespread form and investors should be prepared to lose anything they invest if it does eventually go to $0.”
Cryptocurrency is mostly unregulated in the UK and is considered a high-risk investment. Promotions for cryptoassets can only be made by firms with authorisation from the Financial Conduct Authority (FCA), the City watchdog. Some firms selling it are on the FCA’s cryptoasset register, which simply means they have passed money laundering checks. Promotions for most cryptoassets are also regulated. Unlike investments covered by the Financial Services Compensation Scheme, cryptoassets are not automatically protected if the firm holding them for you fails. There is a real risk that you could lose all of your money.
Some regulated investment products can give you exposure to cryptocurrency. The fund house Invesco has an ETF called the Invesco CoinShares Global Blockchain ETF that tracks the performance of companies that are part of the crypto industry, including the bitcoin mining company Bitfarms, which creates new bitcoins, and the computer chipmaker Taiwan Semiconductor Manufacturing. It is up 9.6 per cent so far this year.
