Podcast Notes | How to Play the "Trump Trade" in Cryptocurrencies?
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Podcast Notes | How to Play the "Trump Trade" in Cryptocurrencies?
If Trump is re-elected president, it will have a positive impact on Bitcoin and the entire cryptocurrency market.
Navigating Web3 tides with focused insightsCompiled & Translated: TechFlow
Hosts: James Seyffart, Analyst at Bloomberg Intelligence; Alex Kruger, Founder of Asgard; Joe McCann, Founder, CEO & CIO of Asymmetric
Guest: Jack Platts, Co-Founder and Managing Partner at Hypersphere Ventures
Podcast Source: Unchained
Original Title: How to Play the ‘Trump Trade’ in Crypto: Bits + Bips
Release Date: July 18, 2024
Background Information
In this episode of Bits + Bips, hosts James Seyffart, Alex Kruger, and Joe McCann are joined by guest Jack Platts to discuss market reactions to the attempted assassination of former President Donald Trump, and how this event may influence the 2024 U.S. presidential election and the cryptocurrency market.
They also explore potential interest rate cuts: Will rates be cut in July? How large could a September cut be? And will this decision be influenced by the upcoming election?
Additionally, they predict what percentage of BTC ETF inflows ETH ETFs might capture, and James shares his thoughts on Grayscale’s ETHE (hint: he’s bullish on ETH).
Finally, they discuss Bitcoin’s future after Germany liquidates its BTC holdings and Mt. Gox begins distribution. Could we now enter a phase of uninterrupted upward momentum?
Crypto Market Sentiment After the Trump Shooting
Impact of the Trump Shooting Incident
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James mentioned that former President Trump was shot during a speech—an injury limited to a graze on his ear—but the incident caused significant political and financial market reactions. James believes it could impact the upcoming election.
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Joe stated that regardless of political stance, such political violence is unacceptable in the U.S. He noted that Trump's image improved dramatically after the event, potentially earning him sympathy points in polls.
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Joe also shared that as an investor and hedge fund manager, his first instinct was to check market dynamics. He observed a surge in trading volume for Trump winning the election on prediction markets.
Crypto Market Reaction
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Joe compared the market reaction to Bitcoin’s price movement following the collapse of Silicon Valley Bank in March 2023, calling it a “flight to safety” trade. He explained that such behavior indicates investors tend to buy Bitcoin—seen as “digital gold”—during times of panic.
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Alex, while agreeing with much of Joe’s analysis, expressed skepticism about the “flight to safety” narrative. He argued this was primarily a “Trump trade,” driven by the perception that Trump is pro-crypto, prompting investors to buy Bitcoin and other cryptocurrencies post-incident.
Market Sentiment and Outlook
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Jack reflected on Bitcoin’s price trajectory since Trump became president, noting substantial gains during Trump’s term. He believes recent market sell-offs may be nearing an end, and the market could rebound due to Trump’s improving political prospects.
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James added that recent polls show Trump leading in several swing states, further strengthening investor confidence in the “Trump trade.” He also noted that even professionals outside crypto are now paying attention to Bitcoin’s price movements.
How Election Markets Serve as Odds Indicators and Whether Crypto Is "Right-Leaning"
Election Markets as Tools to Gauge Electoral Odds
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Joe noted that although Democratic Senate candidates lead in some states, prediction markets offer more accurate expectations of election outcomes. Joe believes prediction markets are more reliable than traditional polls because participants bet real money based on their expectations, not just express opinions.
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James agrees with Joe, adding that platforms like Polymarket and PredictIt have excelled in forecasting election results. While these markets may have certain biases, overall they are more credible than media or traditional polling.
Is the Crypto Market "Right-Leaning"?
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Alex pointed out that despite their strong predictive power, prediction markets face criticism for potential “right-leaning” bias. Polymarket, in particular, has a user base largely composed of crypto enthusiasts, who often lean right politically.
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Jack added that Trump’s vice-presidential pick, JD Vance, is an outspoken pro-crypto advocate, further boosting market confidence. Vance not only publicly supports crypto on Twitter but also holds six figures worth of Bitcoin.
Market Sentiment and Outlook
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Joe emphasized the powerful visual impact of the Trump shooting, which will likely become a key tool for his campaign team. The emotional power of images and narratives could significantly affect voter sentiment, further boosting Trump’s electoral chances.
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James mentioned that Trump plans to speak at next week’s Bitcoin conference, signaling his continued support for crypto. James sees this as a positive signal for the crypto market.
Rate Cuts: July or September? 25 or 50 Basis Points?
Election Markets as Tools to Gauge Electoral Odds
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Joe noted that although Democratic Senate candidates lead in some states, prediction markets provide more accurate expectations of election outcomes. Joe believes prediction markets are more reliable than traditional polls because participants bet real money based on their expectations.
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James agrees with Joe, adding that platforms like Polymarket and PredictIt have performed well in predicting election outcomes. While there may be some bias, they are generally more credible than media or traditional polls.
Monetary Policy and Its Impact on Crypto Markets
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James noted that the market currently expects a 100% chance of a 25-basis-point rate cut at the September 18 meeting. He believes a July cut is less likely but still possible.
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Joe believes a Fed rate cut is highly probable—the key question being timing and magnitude. He highlighted that recent CPI data turned negative, showing inflation clearly dropping, making the current 5.5% rate seem too high. He added that weak retail sales data could increase the likelihood of a July cut.
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Alex and Joe both see a September cut as more likely, but Alex worries that a 50-basis-point cut might signal the Fed is being forced into action, potentially triggering risk-off behavior.
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Jack noted that rate cuts are generally positive for crypto markets, but the specific impact depends on context. A cut due to economic slowdown would affect markets differently than a “safe” cut driven by falling inflation.
Joe’s View on the Relationship Between Global Liquidity Cycle, Rate Cuts, and Potential Bitcoin Rally
Status of the Global Liquidity Cycle
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Joe believes the global liquidity cycle has not yet peaked. Although Q2 typically sees slower liquidity due to tax season and Treasury General Account (TGA) factors, he notes global liquidity began recovering early this year.
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Joe mentioned China faces currency defense challenges, which negatively impacts global liquidity. However, he believes coordinated actions by other central banks following a Fed rate cut could boost global liquidity.
Impact of Rate Cuts on Global Liquidity
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Joe pointed out that Fed rate cuts will weaken the dollar, thereby increasing global liquidity. He believes there’s an almost one-to-one positive correlation between the global liquidity cycle and Bitcoin price, with the dollar index moving inversely.
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Joe explained that as rates fall, investors seek new opportunities instead of holding short-term Treasuries with declining yields. This drives capital into risk assets, including Bitcoin and other cryptos.
Potential Upside for Bitcoin and Crypto Markets
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Joe mentioned that ordinary investors are currently heavily buying T-bills, but as rates decline, they may shift funds to equities or crypto.
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Alex added that when short-term yields drop from 5% to 7%, inflows into equities and other risk assets rise sharply. This implies that in a rate-cut environment, Bitcoin and crypto markets stand to benefit.
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James noted that money market fund levels are at record highs, with many investors treating them as savings. Once rates fall, this capital may flow into equities or crypto.
Outlook
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Joe believes falling rates will push capital out of money market funds and T-bills into risk assets like crypto. He also suggested Ethereum ETFs could become a major channel for inflows.
Latest Updates on Ethereum ETF and Expected Launch
Latest Developments on the Ethereum ETF
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James said the Ethereum ETF is expected to launch on Tuesday, July 23. The SEC has required all issuers to submit final documents by Wednesday, July 17, including details like fee structures.
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James noted that VanEck and Bitwise are currently offering fee waivers, and others are expected to follow. The ETF launch comes two days before the Bitcoin conference, making it a hot topic during the event.
Institutional Investor Perspectives
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Joe invited Jack to share his view as a long-time crypto supporter and institutional investor. Jack believes the Ethereum ETF launch is a very positive signal for the entire industry. Ethereum, as the second-largest crypto after Bitcoin, gaining institutional attention boosts overall market confidence.
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Jack mentioned that while the Ethereum ETF may not be as popular as Bitcoin ETFs, it’s still a major milestone. Even if net inflows fall below $1 billion in the first six months, it remains a long-term positive catalyst for Ethereum.
Market Expectations and Impact
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James emphasized that people shouldn’t overfocus on initial ETF inflows. The launch itself creates a new bridge for traditional finance capital to enter the Ethereum market—a long-term positive factor.
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Joe believes the Ethereum ETF launch means the crypto market won’t rely solely on Bitcoin anymore. He predicts Solana could be the next crypto to get an ETF, signaling the growing trend of crypto “ETF-ification.”
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Alex added that ETFs allow institutions and individuals unable to directly invest in crypto to gain exposure. This will further expand the investor base.
Why Hasn't Solana Outperformed Significantly Since the Trump News?
Market Expectations and Solana’s Performance
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Alex expressed surprise that Solana hasn’t significantly outperformed. Since the Trump news broke, many expected a Solana ETF next year, so he anticipated stronger market performance.
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Joe responded that while Solana hasn’t clearly beaten Bitcoin and Ethereum, it has slightly outperformed both in recent days. He attributes this to Solana’s higher volatility, making it more attractive to traders.
Relative Value and Market Volatility
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Joe further explained that Solana’s actual volatility resembles Bitcoin in earlier years, making it more appealing for traders than lower-volatility assets like Bitcoin and Ethereum. This trading preference shows up in relative value terms.
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Joe noted that while Solana hasn’t surged dramatically, its performance has still edged ahead of Bitcoin and Ethereum due to volatility and trading activity.
Market Sentiment and Expectations
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Alex mentioned that market sentiment and expectations play a key role in Solana’s performance. Despite expectations of a Solana ETF, this hasn’t yet translated into significant price action.
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Joe believes the market may be waiting for clearer signals—such as formal SEC approval or other official news—which could drive Solana’s performance in the future.
Market Breadth Indicates Current Rally and Small-Cap Rate Sensitivity
Changes in Market Breadth
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Alex explained that market breadth refers to the number of stocks participating in market moves. Over the past month, especially last week, market breadth has been very low. This is usually seen as a bearish signal, suggesting the rally might be fake and a sharp correction could follow.
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Alex offered a counterpoint: current market moves are mainly driven by AI, cloud computing, and data centers. Thus, narrow breadth is normal, as these sectors outperform while others can’t keep pace.
Small-Cap Performance
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Alex noted that after Thursday’s inflation data, the small-cap Russell 2000 rose over 4.5%, while the Nasdaq fell 2%. This sharp divergence between large tech and small caps suggests improving breadth, challenging bearish arguments.
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Alex also mentioned that Trump’s policies—like tax cuts and deregulation—may favor small caps more than large ones.
Interest Rates and Small Caps
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Joe added that Bank of America’s global research team recently reported Q2 could be the first quarter where the other 493 S&P 500 companies (excluding the top seven tech giants) achieve EPS growth. This is a major shift, as previous quarters didn’t see this.
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Joe pointed out that small-cap firms are more constrained by high rates because they need to borrow to operate, whereas large firms like Apple can profit from short-term T-bill investments. Thus, rate cuts could improve small-cap performance.
Technical Breakout
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Joe mentioned that technically, the small-cap index showed a massive breakout with a “gap and go” pattern, indicating rising investor interest, partly due to rate sensitivity.
Real Estate Market and Interest Rates
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Alex noted that commercial real estate is also rate-sensitive. Lower short-term rates benefit CRE, while rising long-term rates hurt residential mortgages. We may thus see shifts in the CRE sector.
Future Market Outlook
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Joe summarized that two scenarios are possible: either leading tech stocks (“Magnificent Seven”) pull back, or other stocks catch up to broaden the rally. The coming months will reveal which unfolds.
Predictions on ETH ETF Inflows and Outflows
ETH ETF Inflow Predictions
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Jack predicted Ethereum ETF inflows will be slightly lower than Bitcoin ETFs in the first six months. He finds $100–200 million reasonable, citing lower brand recognition and lack of staking rewards.
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Joe believes ETH ETF inflows will be around 20% of BTC ETFs. He aligns with another speaker, expecting 20–25%.
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Alex also supports this range, finding 20–30% plausible.
Market Expectations for ETH ETF
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James noted that while many expect higher ETH ETF inflows, even 20% of BTC ETF levels would make it a very successful launch—potentially the second most successful ETF debut in history.
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James also mentioned that Grayscale’s ETHE product won’t see the same level of selling pressure as GBTC, since ETHE wasn’t impacted by bankruptcy events like GBTC was.
Grayscale’s ETHE Product
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James mentioned Grayscale is launching a mini Ethereum trust, which might divert some inflows away from the ETH ETF at launch.
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James believes that while the ETH ETF launch may impact ETHE, ETHE should remain relatively stable given it lacks the bankruptcy issues that affected GBTC.
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Jack added that Ethereum’s market cap is around $400 billion, so 1% inflow equals $4 billion. He thinks a $300 million forecast may be more realistic than his earlier $100–200 million estimate.
Where Does BTC Go After Germany Sells Its Bitcoin and Mt. Gox Distributions Begin?
Germany’s Bitcoin Sale
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Joe noted that Germany has completed its Bitcoin sale, but the impact on the market was significant, as they chose to dump during low-volume holiday periods, severely hurting holders.
Mt. Gox Distribution
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Alex explained that Mt. Gox will distribute approximately 141,000 BTC, with 95,000 going to users who opted for early distribution within 90 days. About 30% may be sold, but sales will be phased, avoiding the market shock seen with Germany’s dump.
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Joe added that Genesis also has Bitcoin to distribute, but these are in-kind distributions, so they won’t necessarily hit the market immediately.
Market Trend
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Alex believes that despite Germany’s sale impacting the market, he sees this as a turning point, with the market poised to continue rising.
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Jack pointed out that market performance over the past few months suggests the bull run isn’t over, and recent price action confirms this. He believes Trump’s potential re-election would positively impact Bitcoin and the broader crypto market.
Future Market Outlook
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James believes that although Mt. Gox’s distribution is called “early,” it’s actually been a decade-long process. Many opting for early distribution could have already sold through other channels, so actual market selling pressure may be lower than feared.
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Joe mentioned that if Trump wins again, it would be positive for Bitcoin and crypto. He also suggested China might lift its ban on Bitcoin and crypto, further fueling the rally.
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Alex believes that if China truly lifts the ban, Bitcoin could surge sharply in a short period.
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