It can be difficult to make sense of the price of Bitcoin, which has fluctuated wildly throughout its history. But in the wake of Donald Trump’s victory as president of the United States, this figure reached unprecedented heights.

Last weekend it exceeded US$80,000 (A$122,492) for the first time. Then, on Tuesday, he briefly flirted with the US$90,000 threshold.

Many other cryptocurrencies have also seen a a significant boost.

In Trump, the crypto community sees a powerful new friend. Speaking At a major Bitcoin conference in Nashville in July, he promised to create a friendlier business environment if re-elected:

We will have regulations, but from now on the rules will be written by people who love your industry, not hate it.

So, are things really getting better for crypto? Many of Trump’s plans have sparked excitement in the industry – but there are still good reasons to be cautious.

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Less paperwork, more crypto

Trump has long been a staunch supporter of government deregulation – favoring less intervention in many areas of the economy.

This could reduce regulatory pressure on cryptocurrencies and open the door to faster growth and innovation within the sector.

Overt government support could also attract more institutional investors by creating a favorable environment for digital assets.

Trump has signaled a wide range of pro-crypto policies, including the creation of a government bitcoin storepreventing the government from selling its cryptocurrency holdings, and even using cryptocurrency to tackle the national debt.

Continuing his pro-bitcoin stance, he has also already expressed his opposition to “central bank digital currencies”, or CBDCs.

CBDCs are a relatively new form of digital currency – and the United States doesn’t have one yet. However, unlike decentralized cryptocurrencies such as bitcoin, the value of a CBDC is determined by the central bank of its issuing country.

Trump’s previous reviews of the US Federal Reserve have resonated with many cryptocurrency advocates who have advocated for decentralized financial systems.

A volatile US dollar

A Trump presidency could lead to significant volatility in the U.S. dollar against major currencies.

One of the core policies of Trump’s re-election campaign was to impose tariffs 10-20% on all imports to the United States and 60% on imports from China.

New or increased tariffs could lead to trade tensions, which would impact foreign exchange markets. This would likely strengthen the dollar temporarily, as domestic goods become more expensive.

But such uncertainty could also spur market speculation and dollar fluctuations.

If the dollar falls, some investors looking for alternatives may turn to cryptocurrencies as a fallback. protect against inflation or a devaluation of the currency.

Geopolitical risk

Trump’s presidency could bring increased geopolitics and domestic political tensions. Is cryptocurrency a safe haven in such circumstances? Some proponents have already presented this asset class as a kind of “digital gold.”

On some occasions during Trump’s first presidency, he may appear to have acted like one.

In 2019, the price of Bitcoin soared Trade tensions between the United States and China have intensified. It is also briefly enriched in early 2020, when Iran struck two US military bases in retaliation for the assassination of Iranian General Qassem Soleimani.

Such a reputation can influence investor behavior. However, previous research has disputed the idea that bitcoin acts as a safe haven, seeing its price decline amid increased financial uncertainty.

Other research has discovered that bitcoin and its fellow cryptocurrency Ethereum are not safe havens in many international stock markets. When included in a portfolio, they increase downside risk.

Is the euphoria justified?

The euphoria in the crypto market following Trump’s victory may be understandable. His support for digital currency could benefit investors and industry leaders who seek fewer regulations.

However, these markets remain inherently volatile. Less regulation could further amplify this characteristic.

If Trump’s deregulation of cryptocurrencies leads to increased speculation by investors, it could make the cryptocurrency market even more vulnerable to bubbles and crashes. Global markets could face difficulties.