The "Trump trade" continues to heat up, with Bitcoin emerging as the big winner. On Monday, Bitcoin surged past $88,000, spiking more than 11% in a single day. Trading volumes for Bitcoin ETFs also skyrocketed, fueling growing confidence in the cryptocurrency market. Many investors are betting that this rally is just the beginning and could continue until Trump's inauguration.
In contrast, gold, which had previously been a standout performer, has taken a sharp downturn. Since the election, gold prices have dropped significantly, now falling below the 50-day moving average and nearing the critical $2,600 per ounce mark. This decline has tempered the excitement over gold's earlier gains this month.
So why the sudden contrast between Bitcoin's dramatic rise and gold's decline? Analysts point to the potential shift in economic policy under a second Trump term, which could favor the "small government" philosophy, benefiting decentralized assets like Bitcoin. This cautious fiscal approach may also reduce gold's appeal as a safe-haven asset.
Bloomberg analyst John Stepek explained that Bitcoin's surge is largely driven by expectations that Trump's governing style may lean toward reducing government intervention and spending, rather than adopting the "big government" model of modern monetary theory (MMT), which supports expansive fiscal policies to stimulate economic growth. In this environment, Bitcoin, as a decentralized asset, stands to benefit.
Gold's decline can also be understood through a similar lens. The market had previously anticipated that Trump's presidency would lead to higher fiscal spending and larger deficits, which had provided strong support for gold prices. However, expectations have shifted. Trump may not pursue aggressive government spending, and could even take a more cautious approach to fiscal policy. This shift dampens gold's appeal as a hedge against inflation and financial uncertainty.
Brent Donnelly, an analyst at Spectra Markets, suggested that the election has made politicians more aware of the public's dissatisfaction with rising inflation. As a result, Trump's second term may place a greater emphasis on managing inflation, further weakening the demand for gold and boosting Bitcoin's appeal as an emerging asset.
