Introduction

Donald Trump’s return to the White House in January sent ripples through the crypto market — and not in the way many expected. In the lead-up to the election, Bitcoin and several altcoins experienced a sharp rally, with BTC climbing as high as $109,000. But since Trump took office, that momentum has stalled. Over just 50 days, Bitcoin has dropped to lows of $76,600, a 29.5% decline. This sudden reversal has sparked uncertainty across the market, as investors question whether Trump’s policies could have a longer-term negative impact on crypto. In this article, we’ll break down Trump’s economic strategy and explore how it could still create new opportunities for the crypto space.

Trump’s Strategy

Trump’s long-term economic strategy is relatively complex and heavily reliant on the Federal Reserve (FED). At its core, his approach aims to reduce inflation and wind down foreign conflicts, both of which could pressure the FED into cutting interest rates. As inflation cools, the FED may be forced to lower rates to avoid deflation, since its target is typically around 2% to support steady economic growth. If the FED doesn’t act, there’s a risk of economic contraction, something we’re already beginning to see, with a rise in unemployment figures.

If the Trump administration succeeds in pressuring the FED to cut rates, here are the key outcomes we could expect:

• Weakening Dollar and Increased Liquidity: Lower interest rates usually lead to a weaker US dollar. As fiat becomes less attractive to hold, more capital could flow into the crypto markets.

• BTC as an Inflation Hedge: A weaker dollar tends to fuel inflation. Investors may turn to Bitcoin as a hedge, increasing demand and driving up prices.

• Rotation out of Stablecoins: Lower yields in DeFi protocols mean stablecoin holders (like those holding USDC) may shift their funds into more volatile assets like BTC, SOL, and other altcoins in search of better returns.

• Stock Market Rally and Spillover into Crypto: Rate cuts also tend to boost the stock market. This broader investor confidence could spill over into crypto markets as well.

• Cheaper Borrowing Encourages Risk-Taking: Lower interest rates reduce borrowing costs, which typically leads to more institutional investment into riskier, higher-growth assets, including crypto. This added demand could significantly lift prices.

If rate cuts alone aren’t enough to stimulate the economy, there’s also the possibility of Quantitative Easing (QE):

• QE may be introduced if the economy fails to respond to rate cuts. Historically, QE and asset prices, including crypto, have shown a strong positive correlation.

• With more liquidity injected into the economy, institutions and investors will have greater access to capital, increasing their ability to invest in riskier assets like crypto.

Bitcoin and Stablecoin Dominance: Where’s the Smart Money Headed?

A useful way to track market sentiment is by looking at the Bitcoin dominance chart and the combined USDT + USDC dominance chart, as illustrated in Figure 1. These show what percentage of capital in the crypto market is currently sitting in Bitcoin and stablecoins, essentially, how risk-averse the market is.

If interest rates are cut, we’re likely to see a significant flow of money into riskier assets within the crypto space, particularly altcoins. This shift would reduce both Bitcoin and stablecoin dominance, as capital moves away from these safer assets and into altcoins. Such a trend could provide a major opportunity for altcoins to rally in a more liquid environment where investors hunt for higher returns.

However, it’s important not to misinterpret this movement. While money will still flow into Bitcoin and stablecoins, especially as entry points, there is a strong chance that much of it will eventually rotate into higher-risk altcoins like Cardano, Solana, and others as investors seek greater returns.

When Could This Happen?

In the short term, analysts expect the Federal Reserve to hold interest rates steady at 4.25% – 4.50% during the March meeting. This suggests that any immediate impact on the crypto market is unlikely to come from rate cuts.

Looking further ahead, however, economists are predicting potential rate reductions around June or September 2025, under the pretence of weaker economic growth driven by indicators such as slowing GDP or rising unemployment. This view is echoed by market data from the CME FedWatch Tool (Figure 2), which shows rising probabilities for cuts to begin mid-to-late 2025.

Concluding Remarks

The impact of Trump’s administration on the crypto market is already being felt, and it’s likely just the beginning. His broader strategy appears to centre around weakening the dollar, reducing inflation, and slowing economic growth. With quantitative tightening already easing and unemployment on the rise, pressure is mounting on the FED to respond with rate cuts.

If the FED follows through, the knock-on effects could be significant: increased liquidity, higher risk appetite, and capital rotation into crypto. While recent market action post-election has sparked fear, it’s important to recognise that these are short-term reactions to a long-term strategy.

Should rate cuts alone fall short, Quantitative Easing (QE) may provide the additional fuel needed. As shown in Figure 3, Bitcoin’s price has historically tracked global liquidity trends, with expansions in the money supply (M2) often coinciding with major crypto rallies. QE, therefore, could play a pivotal role in triggering the next leg up for Bitcoin and broader crypto markets.

Ultimately, while nothing is guaranteed in the world of crypto, the combination of FED policy shifts, Trump’s macroeconomic pressure, and available stablecoin capital could set the stage for a future rally. Patience and a long-term perspective may be key for those watching the charts and waiting for the next move.