Bitcoin is now worth more than any U.S.-listed company other than the six biggest. Dogecoin, created as a joke and the first cryptocurrency to have a government department named after it, would make it to the top 200 stocks by value, larger than Johnson Controls International.
The election lit the rocket that crypto enthusiasts hope will take prices to the moon . They are anticipating that President-elect Donald Trump will follow through on his pledge to defenestrate the anti-crypto chief of Securities and Exchange Commission, Gary Gensler, ease regulations on crypto-company listings, exchanges, finance and mining, and create a national stash of bitcoin.
Easier regulations should in principle push up prices by making it easier to attract buyers. Because cryptocurrencies aren’t backed by income or an economy, in the absence of any fundamentals they are driven entirely by supply and sentiment-driven demand. More buyers means a higher price.
Yet, dig deeper into the argument, and it is hard to see why bitcoin should benefit so much. The mother of cryptocurrencies is different than most coins. Along with the No. 2 coin, ethereum, it has little in the way of regulatory pressure. It is treated as a commodity, so it avoids direct SEC oversight, and has both futures and—thanks to lawsuits against the SEC—ETFs.
Other crypto-coins could benefit a lot if they also were exempted from SEC rules on prospectuses, while ether could benefit from a more relaxed approach to decentralized finance, but neither change would help bitcoin. Indeed, more demand for other coins might, at the margin, take buyers and their money away from bitcoin, which is by far the largest.
“Any regulatory easing that happens for crypto is net more beneficial for altcoins [non-bitcoin crypto] than bitcoin because there’s no regulatory business for bitcoin,” says Alex Thorn, head of research at Galaxy Digital, a crypto financial-services firm.
So why is bitcoin up a third since its election-night low, adding almost $500 billion to its total value in less than two weeks, while altcoins and ether have lagged behind? There are three common arguments.
The first amounts to “Duh.” The next president is, after a change of heart, avowedly pro-crypto and surrounded by advisers who like crypto. Bitcoin is the biggest crypto. Ipso facto, buy bitcoin.
Given that the value depends purely on sentiment—remember, no fundamentals—this is plausible, if deeply unsatisfying; it amounts to saying that because “bitcoin” and “crypto” are currently interchangeable terms for most people, anything good for crypto is good for bitcoin, even when it isn’t.
The second is Trump’s campaign promise to create a “strategic national bitcoin stockpile,” starting by blocking the sale of bitcoin previously seized by law-enforcement agencies. What has got bitcoin bros excited is the idea that this could morph into a strategic bitcoin reserve to back the dollar, something proposed by Sen. Cynthia Lummis (R., Wyo.).
Rumors have been flying that other countries could rush purchases of bitcoin to, in effect, front-run a Trump bitcoin buying program. Yet, the idea makes zero sense. Strategic currency reserves are for countries that have wobbly foreign exchange because of a lack of trust in their currency, or for those that need to recycle trade surpluses into overseas assets. Neither applies to the U.S. Even if they did, would Trump really want to divert American resources away from spending or tax cuts to buy bitcoin?
“If the Treasury or the Fed were to say they’re going to buy bitcoin to help back the dollar, it would be very bad for the dollar in the same way that if they said they were going to buy lollipops or toothpaste to back the dollar,” Thorn says. And he likes bitcoin. “The dollar is backed by the full faith and credit of the U.S.”
Still, it is hard to predict what the new administration will do. For sure, any sign that the government was buying bitcoin absolutely would push up the price, mad as the idea is.
The third argument centers around the threat of inflation, for which some bitcoin buyers continue to think the cryptocurrency offers a hedge. The bond market has been betting that Trump’s policies will lead to higher inflation, thanks to tariffs and tax cuts. Yet, bitcoin has never been a good hedge for inflation, and moves much more closely with speculative stocks than it does with inflation hedges such as gold (now down since the election) or inflation-linked bonds.
Put another way: Bitcoin is about animal spirits, not plodding economic analysis. No wonder it likes Trump.
Write to James Mackintosh at james.mackintosh@wsj.com
