Bitcoin investors might need to brace themselves for some turbulence this quarter as two key elements of Trump’s policies appear to be on a collision course. Over the past week, bitcoin has been experiencing its most challenging stretch since September. Two major factors are driving this: President-elect Trump’s proposed tariff policies and a robust report on payroll figures, both of which have caused bond yields to climb and the dollar to strengthen, putting pressure on bitcoin and other investments seen as risky. Despite the fading of the post-election cryptocurrency rally by the end of 2024, there was still an air of optimism as 2025 began. Hopes pinned on a pro-crypto stance from Congress and the White House outweighed potential economic hurdles.
### Dip Before the Recovery?
As more details emerge about Trump’s first 100 days, it’s becoming evident that bitcoin could see further declines before making any upward strides. While a government supportive of crypto under Trump might bolster digital assets this year, parts of his agenda might dampen prices in the short term. Zach Pandl, Head of Research at Grayscale Investments, noted, “The strong dollar is bitcoin’s main challenge right now.” He added, “The Federal Reserve has signaled slowdowns in rate cuts, but recent market dips suggest that not all Trump policies will favor bitcoin — tariffs are adding a layer of uncertainty.”
Early in the week, bitcoin was buoyed by a Washington Post article suggesting Trump’s tariff plans might be limited. But just two days later, talk was swirling about Trump considering emergency measures for broader-reaching tariffs, leading to the dollar strengthening, particularly as Treasury yields reached their highest in 14 months. Alex Thorn, from Galaxy Digital, explained, “Since the Fed’s hawkish cut in December, investors have been edgy with sensitive reactions to strong data on employment, services, and prices. Mixed with the uncertainty surrounding Trump’s trade and tariff plans, risk assets might see volatility in the short term, though the long-term prospects for bitcoin and digital assets seem promising.”
While bitcoin’s correlation with stocks and gold varies, it consistently shows a positive correlation with global liquidity (measured by M2, a broad money supply measure) and a negative one with the dollar index. Last week, Mike Colonnese of H.C. Wainwright noted M2 levels have been declining since October, suggesting bitcoin might hover around the mid-$70,000s this quarter. Kenneth Worthington from JPMorgan has highlighted that Capitol Hill’s legislative process is slow, implying that any positive policy impact might only surface by year’s end.
Zach Pandl at Grayscale also commented, “For the next three months, Congress will focus on issues beyond crypto, necessitating a market driven by broader economic factors.” Despite this, he expressed confidence that Congress will eventually tackle crypto legislation regarding stablecoins and market structure. Major issues like immigration, taxes, and tariffs remain priorities, he pointed out.
Following Trump’s pro-crypto campaign and significant industry contributions towards electing a favorable Congress, bitcoin surged over 45% post the November 5 election, before pulling back in December. Pandl expressed, “I firmly believe a pro-crypto Congress and legislative setting will robustly support the asset class. Yet, facets of Trump’s agenda could bolster the dollar and introduce market risks, with tariffs being a prime example.”
