Effects of US Election Results on Crypto and Retail Investors

The US elections have had a significant impact on various markets, with the crypto space being no exception. Following Donald Trump’s victory, the market has experienced a surge in crypto prices, which many believe is the start of a new bull run. Anush Jaffer, content lead at Mudrex Research, discussed the implications of a Trump win on crypto markets and retail investor sentiment during a recent ETMarkets live stream.

Immediate market reaction

The immediate market reaction to Trump’s victory has been overwhelmingly positive. Over the past week, Bitcoin surpassed its previous all-time high and entered a price discovery phase. The cryptocurrency is now experiencing a breakout, having cleared bearish resistance levels after a prolonged consolidation phase. The surge is not limited to Bitcoin, as altcoins such as Ethereum and Dogecoin have also seen significant gains, reflecting the broader market rally.

The Trump Factor

The significant shift in the market can largely be attributed to Trump’s pro-crypto stance. In contrast to the Democratic Party’s cautious approach to crypto regulation, Trump’s policies have historically favored the sector. Under his leadership, investors are expecting a more crypto-friendly environment, especially with the possible dismantling of initiatives like Operation Chokepoint, which has been criticized for restricting access to banking services for crypto companies.

Trump’s campaign promises are more consistent with these expectations. He has proposed the creation of a national bitcoin reserve similar to gold, which could greatly enhance bitcoin’s legitimacy as a strategic asset. Additionally, Trump aims to establish a Bitcoin and Crypto Advisory Council to create balanced regulations and eliminate overly restrictive measures. His opposition to central bank digital currencies (CBDCs) also resonates with the crypto community’s desire to protect financial privacy and autonomy.

Trump’s plan to replace SEC Chairman Gary Gensler, who has taken a tough stance on crypto regulation, is another notable move. The change could lead to more favorable rules for digital assets, particularly DeFi and utility tokens, which have faced legal uncertainty under Gensler’s leadership.

Retail Investor Sentiment

Retail investor interest is a key indicator of market trends in the crypto space. After Trump’s victory, there has been a significant shift in retail sentiment. Positive sentiment often signals the possibility of price increases and early signs suggest that retail investors are re-engaging with the market. Indicators such as Google search trends for cryptocurrency and YouTube views of top influencers show an increase in retail activity, which contributes to increased market liquidity.

Retail participation typically boosts market momentum, and with more investors entering the space, the crypto market has seen significant inflows, including more than $2.2 billion into bitcoin spot ETFs in just three days after the election results.

Factors supporting sustained growth momentum

While Trump’s victory is a major catalyst, several other factors support the continuation of the bullish trend. An increase in the global money supply and easing interest rates are driving investors to alternative assets such as cryptocurrencies, which are seen as a hedge against inflation. This liquidity flow is fueling investor interest in digital assets.

Additionally, many traditional equities and commodities, such as gold, have already reached all-time highs, prompting investors to diversify into cryptocurrencies. Bitcoin’s all-time high is now accompanied by strong upward momentum in altcoins, with Bitcoin dominance waning as altcoins surge.

A word of caution

Despite the bullish outlook, some caution is warranted. The Relative Strength Index (RSI) for many tokens is high, indicating that some assets may be overbought and may experience a short-term pullback or consolidation. For short-term traders, it is important to manage risk and consider alternative entry points or profit-taking strategies.

However, the outlook remains optimistic for long-term investors. Many tokens are still in the neutral zone on the RSI heatmap for the weekly time frame, indicating that there is room for growth without immediate risk of overvaluation.

(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)