Bitcoin enters a time of profound uncertainty after the apparent election of Donald Trump to the US Presidency. The cryptocurrency's price has seen a significant drop despite initial expectations of positive momentum fueled by Trump's pro-crypto stance and the promise of a Strategic Bitcoin Reserve.
If you remember back in January of this year, Bitcoin went on a moonshot to $108,786. It has since crashed by more than 20% soon after the inauguration. The first collapse reduced the value from $90k to $84,600. This drop came on the heels of the announcement of Trump’s executive order establishing the reserve.
The drop in Bitcoin's price is unexpected, considering its historical performance and the anticipation surrounding Trump's policies. Bitcoin often leads the whole market on the upside. This growth is driven by its cyclical nature and happens as a result of periodic halving events that occur every four years. Each of these occurrences diminishes the amount of BTC miners receive, creating more scarcity and generally raising price.
Strategic Bitcoin Reserve
Investors became more bullish on Bitcoin after they learned that President Trump would form a Strategic Bitcoin Reserve. This hope pumped tremendous optimism into the market. The reserve would be made up of those 198,000 BTC, which the American government has confiscated through law enforcement confiscations. This remarkable hoard is to the tune of $17 billion.
The plan was to fund the reserve with asset forfeitures. This approach meant taxpayers would never be on the hook for losses. Donald Trump’s return to the White House on March 13 was a historic day. This time around, a pro-crypto President was coming in, setting up pretty high hopes for some major pro-Bitcoin developments.
The idea of a strategic reserve was pitched as a means to legitimize and stabilize Bitcoin. But as evidenced by the recent price crash, the market’s early enthusiasm has certainly subsided.
Market Dynamics and Influences
Over the past few months, Bitcoin has been closely correlated with Wall Street. This relationship has left Bitcoin vulnerable to macroeconomic trends and changes in risk appetite. This relationship might play a non-trivial role in today’s price volatility.
Further, the launch of the meme coin $TRUMP probably unintentionally caused a spike in lost investor confidence. The meme coin explosion can overshadow the more serious nature and maturity of established cryptocurrencies such as Bitcoin.
"Under the so-called Bitcoin Act, the US must accumulate 1 million bitcoins within 20 years, with the goal of owning roughly 5% of the total supply," - Maxim Manturov, head of investment research at Freedom24.
While this statement refers to a hypothetical act, it reflects the broader sentiment that government adoption and accumulation of Bitcoin could significantly impact its value and stability.
Future Outlook
Even with those recent losses, it’s still likely that Bitcoin’s price is going to be much higher by the end of this year. The crypto’s built-in scarcity, thanks to its halving cycle, is still one of the basic case principles that upholds its long-term value.
Additionally, their underlying technology and growing acceptance of cryptocurrencies fuel constant curiosity and monetization opportunities. Looking ahead, the market may be in a broader correction that is short-lived. Still, most analysts remain bullish on Bitcoin’s long-term prospects.
If the Strategic Bitcoin Reserve is created as intended, it stands to increase Bitcoin’s price significantly. Further, it can improve the peg of the crypto currency. Judging by the first market response, investors have adopted a wait-and-see attitude.
