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by Hedy | OKG Research
Whether you call it the “Trump Trade” or the “Trump Bubble”, one key question lingers amidst this liquidity-driven frenzy: how much longer will Bitcoin benefit?
This Tuesday, the overnight reversal of the “Trump Trade” sent ripples through the Bitcoin market. Bitcoin briefly surged to $99,000 before retreating sharply below $93,000, a drop of more than 6%. The selloff was triggered by rumors of a potential ceasefire agreement between Israel and Lebanon, shaking broader markets. Not only Bitcoin but also gold and crude oil prices tumbled in response.
With Bitcoin gaining over 40% in the past month, investor risk sensitivity is on the rise. But is this 40% rally just the beginning, or are we nearing the end? This appears to be a short-term reaction to a single event. From a broader perspective, external macroeconomic conditions remain unchanged, and liquidity levels are unlikely to allow this cycle to grind to a halt.
From a macro lens, the Federal Reserve’s decision on September 18, 2024, to cut interest rates by 50 basis points to 4.75%-5.00% marked the end of a 525-basis-point tightening cycle — the first rate cut since 2020. As Bobby Axelrod of Billions aptly put it, “Power isn’t everything, but without it, you’ve got nothing.” Similarly, the Fed’s policies are a significant force in shaping Bitcoin’s market behavior, balancing between the flood of liquidity and inflation-hedging demand.
Bitcoin, straddling the roles of a magnifier for equity market performance and an inflation hedge, has gained additional room for growth as rate cuts unleashed fresh liquidity for risk assets. Meanwhile, potential economic instability and policy uncertainty have positioned Bitcoin as a hedge against real-world risks.
Trump’s return to office, coupled with his new administration, has introduced plans for aggressive fiscal stimulus to reinforce the “America First” agenda. Increased government spending will likely amplify market liquidity. On top of this, Trump’s campaign pledge to establish a national Bitcoin reserve — leveraging cryptocurrency to weaken the dollar’s rivals — further fuels speculation. His administration’s inclination to appoint crypto-friendly regulators could pave the way for a U.S.-led international cryptocurrency framework.
That said, some skeptics warn of looming risks, raising alarms about an impending financial crisis. According to MacroMicro’s U.S. Recession Probability Index, the likelihood of a U.S. recession in November 2024 stands at 24.9%. Compared to the last recession triggered by the financial crisis, any upcoming downturn could peak within six months. Amid this tug-of-war between liquidity and inflation hedging, Bitcoin remains acutely sensitive to shifts in liquidity conditions.
In this macroeconomic backdrop, institutional liquidity has been a boon for Bitcoin. Since the launch of Bitcoin spot ETFs in January 2024, institutional demand has soared. As of November 21, data from OKLink Research Institute reveals that global Bitcoin spot ETFs now account for 5.63% of total Bitcoin supply. In financial markets, the 5% ownership threshold is often a key marker — SEC regulations, for instance, require shareholders exceeding this level to report their holdings.
Beyond ETFs, public companies have also taken notable steps in this political climate. Since November 6, 17 U.S. and Japanese companies have announced Bitcoin holdings or board-approved plans to adopt Bitcoin as a strategic reserve asset. MicroStrategy stands out, having acquired 55,500 Bitcoins for $5.4 billion between November 18 and 24. Currently, only 0.01% of global public companies hold Bitcoin — suggesting this is merely the tip of the iceberg in terms of institutional buying power. The market remains firmly in its “elite experimental stage.”
According to OKLink Research Institute’s conservative estimates, approximately $2.28 trillion of traceable funds could flow into Bitcoin over the next year. Such an influx could drive Bitcoin’s price toward $200,000 — aligning with projections from Bernstein, BCA Research, and Standard Chartered.
As liquidity tailwinds build momentum, skeptics question whether the “Trump Trade” might evolve into a “Trump Bubble.” In The Great Stagnation, economist Tyler Cowen argues that bubbles can be beneficial, concentrating capital into emerging industries and innovation projects, thereby encouraging risk-taking and entrepreneurial activity. Much like the dot-com bubble of the 1990s, whose collapse in 2000 left behind critical infrastructure — fiber-optic networks and data centers — this wave of liquidity could similarly lay the groundwork for the crypto economy.
However, if Trump’s fiscal policies become overly aggressive, excessive liquidity could risk inflating unsustainable bubbles, with the crypto market being no exception. Under such conditions, Bitcoin’s price could run ahead of its intrinsic value.
Bitcoin’s dual nature — as both a magnifier of equity market movements and a hedge against real-world risks — adds to its allure but also its volatility. Consider the consumer staple of milk as an inflation marker: from 2019 to 2024, the average price of milk in the U.S. surged from $2.58 to $3.86 per gallon — a 49.22% increase. During the same period, Bitcoin soared by approximately 1,025%, far outpacing gold (73%) and the S&P 500 (40%).
Moreover, smaller nations have begun turning to Bitcoin to protect their wealth from inflation. El Salvador, for instance, adopted Bitcoin as legal tender, while Bhutan has ventured into Bitcoin mining, seeking to leverage its scarcity and decentralization as a shield against inflationary pressures.
Despite short-term fluctuations, Bitcoin’s fixed supply of 21 million, decentralized nature, and global liquidity remain constants. Its evolution into a store-of-value asset is being accelerated by institutional adoption and corporate treasury allocations.
This financial experiment, born from the ethos of the cypherpunk movement, is gradually carving out its role in the real world. Whether Bitcoin can fully emerge as a global asset remains to be seen, but its trajectory suggests a lasting imprint on the financial landscape.
Note 1: Methodology for Estimating the Capital Influx
- Government and Pension Funds: This projection considers countries and states currently permitting Bitcoin investments, assuming a 2% allocation of their total assets. Growth rates are based on the compound annual growth rate (CAGR) for each region. For instance, the U.S. is estimated at 8.9%, the U.K. at 4.22%, and Nordic countries average around 3%.
- Corporate Strategic Reserves: The calculation incorporates cash reserves from major global stock markets, including the U.S., Germany, Japan, the U.K., South Korea, Hong Kong, Singapore, India, Brazil, Australia, Canada, and Taiwan. A 5% allocation of market capitalization is assumed, with companies like Microsoft using up to 9.5% as a benchmark. This figure is further adjusted by a growth factor — global stock markets have shown a 9.68% CAGR over the past decade — and assumes a 10% investment ratio.
- Private Companies: Projections for private firms are scaled in proportion to disclosed investments by public companies, estimated at 90% of public firms’ investment levels.
- Wealth Management Sector: Based on reports by Morgan Stanley, Capgemini, and Accenture, 71% of high-net-worth individuals (HNWIs) have already allocated funds to Bitcoin. The remaining untapped HNWI wealth is estimated, adjusted by a 4.5% growth factor, and assumes a 5% allocation for Bitcoin investments.
This model provides a conservative estimate of future capital entering the Bitcoin market, reflecting a blend of institutional interest and strategic financial shifts toward cryptocurrency.
Note: This article provides market observations and trend analysis for informational purposes only and should not be considered investment advice.
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