"Post-election fund strategic allocation and leveraged funds will drive the price of cryptocurrencies up. The short-term market sentiment is overheated and faces adjustment risks, but the overall environment remains optimistic until Q1 2025."
Trump's election as president undoubtedly brings good news to the crypto industry, and the most important aspect is the clarity of regulation for the cryptocurrency industry. FIT21 (clear asset definitions and framework), stablecoin legislation (prohibiting algorithmic stablecoins, 100% asset collateralization, and issuance volume regulation), and the Bitcoin bill (Bitcoin as a national strategic reserve, with the Federal Reserve purchasing Bitcoin with $6 billion in revenue annually) are expected to make progress next year. Institutional investors have undoubtedly begun to position themselves ahead of the favorable policies of Trump's new administration, and next year could be a unique year for crypto assets amid a complex economic situation.
The debt issue is looming large after Trump takes office in the New Year. U.S. debt has exceeded the ceiling of $31.4 trillion (as shown in Figure 1, with Biden signing a bill this year to suspend the debt ceiling, which will be reinstated next year). The massive U.S. current account deficit will force bond investors to demand higher yields (otherwise sell off), and the bond market remains pessimistic. We already have a rough idea of Trump's plan: "tax cuts, deregulation, high tariffs, and immigration restrictions." Trump is thinking about bringing manufacturing back to the U.S. (creating jobs and boosting exports) and offsetting the inflation effects of tariffs with tax cuts and a strong dollar (making the public less sensitive to rising prices due to increased wealth).
Thus, the U.S. dollar remains strong relative to other currencies. The weak economies of the EU and China, combined with tariff impacts, will lead to looser monetary policies in other countries compared to the Federal Reserve. Inflation and interest rates remain high, and corporate profit growth will be driven by tax cuts and deregulation. In the short to medium term, the stimulus to the market will be rapid (MAGA🚀), and after that, we will have to see the actual economic performance.
Of course, policy needs to be well-balanced for MAGA to be truly realized. There is uncertainty in policy execution, and whether Trump will fulfill multiple commitments and the execution rate will be variables that affect the dollar and market trends.
Institutional traders have not only begun to price in a strong dollar but have also adjusted their expectations for next year's interest rate cuts. Currently, most believe that the Federal Reserve's path to rate cuts will slow down, and the estimated effective interest rate for 2025 has slightly increased to the range of 3.5% to 4% (as shown in Figure 2). The Federal Reserve's slowing path of easing and the recent growth of the Treasury General Account (TGA), which has increased by nearly $100 billion since early September (as shown in Figure 3), could help improve market liquidity if the new government starts to increase spending.
With only 7 trading days left until the end of the year, the SP500 has also reached the expected target price of 6000. The stock market is expected to face adjustment risks, but after this adjustment, it will continue to rise. Many fund managers who exited early before the election may take advantage of the Christmas season to enhance their performance. Therefore, I believe that the last surge of cryptocurrencies this year can last at least until early December, and then we will wait for the explosion in 2025. Many favorable factors for the crypto market have yet to be reflected in the market next year.
As shown in Figure 4, DeFi has performed impressively in the past week (of course, there are also memes 🤨). Under next year's loose policies, there will be more room for project innovation and development, but there will also be more space for unscrupulous players (scammers are likely to make a full comeback 🤬). We will see more diverse narratives, more large financing, and more adoption by major institutions.
As a small part of the industry, I cannot stop bad people or change anything. I can only stay clear-headed and know when to advance and retreat.
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