Global economy and bitcoin’s rise following Trump’s victory

This month, Donald Trump’s re-election as the President of the United States has triggered significant fluctuations in the global economy. Trump’s protectionist trade policies and pro-strong dollar rhetoric during his campaign shaped the markets’ reactions in the aftermath of the election results.

With Trump’s victory, investors turned to the U.S. dollar, seen as a safe haven, leading to rapid depreciation in the currencies of developing countries.

Signals of a return to economic policies that fuel expectations of U.S. interest rate hikes further strengthened the dollar, deeply impacting a wide range of countries from export-driven economies to those reliant on imports. Trump’s victory is seen as heralding a period that will reshape not only financial markets but also trade and investment strategies.bRenewed criticism of central bank policies during Trump’s term has paved the way for a shift toward alternative investment instruments.

Particularly, the influence of Elon Musk, currently seen as one of Trump’s closest allies, and his continued support for cryptocurrencies on social media increased post-election interest in Bitcoin. This anticipated rise, according to experts, is driven by the strengthening dollar, reduced confidence in the currencies of developing nations, and both individual and institutional investors turning to decentralized assets like Bitcoin. Musk’s witty and impactful statements on social media have also significantly fueled this trend. Bitcoin, once again assuming the role of the “digital gold” of crisis periods, clearly reflects not just speculation but a real search for solutions prompted by global economic imbalances. German blockchain expert Moritz Pindorek is among those unsurprised by this rise. The successful investor notes that factors like Trump speaking at the Bitcoin Conference and keeping Elon Musk close make Bitcoin’s surge inevitable.

Ripple, a company that has been entangled in lawsuits with the U.S. for years, also made headlines recently when its CEO, Brad Garlinghouse, met with Trump last week. Rumors that Trump might soon appoint him as a crypto czar have gained traction, leading to approximately a 200% increase in the company’s stock value within a week.

Israeli institutional investors, including investment houses and insurance companies that manage the public’s long-term savings and pension funds, remain cautious about investing in cryptocurrencies. According to the Bank of Israel’s financial stability report, the Israeli public holds approximately $1.5 billion in cryptocurrencies, accounting for just 0.1% of the public’s total asset portfolios. In the first quarter of 2024, Israel ranked 22nd among OECD nations in cryptocurrency adoption, based on data from the Bank of Israel. While Israel’s investment in digital currencies relative to GDP is lower than most OECD countries, it is notably higher than the United States, which ranked 37th, third from last. These figures, however, reflect the situation at the end of Q1 2024, before the increasing likelihood of Trump’s presidential election win became apparent. The Bank of Israel also reported that an analysis of private Bitcoin wallets with an Israeli connection identified about 3,000 wallets, the majority of which hold less than $10,000 in assets, with only around 60 wallets containing amounts above that threshold.

A significant development a few days ago was Trump nominating hedge fund manager Scott Bessent as Secretary of the Treasury. Trump highlighted Bessent, the founder of Key Square Group, a firm offering investment advisory services, as one of the world’s leading international investors and geopolitical strategists and a strong advocate of the “America First” agenda. In his first interview, Bessent stated that his initial act upon taking office would be to fulfill tax cut promises. He also mentioned his focus on implementing customs tariffs, curbing spending, and maintaining the dollar’s reserve currency status. While his nomination has faced some criticism, it has generally been perceived positively from an economic perspective. Kathleen Brooks from XTB suggests that any potential weakness in the dollar should be seen as a buying opportunity, as Bessent is expected to advocate for a steady approach to potentially inflationary trade tariffs. Of course, Bessent will need Senate approval to take office.

In conclusion, while Israel’s cautious stance on cryptocurrencies continues, the volatility in global markets raises questions about the sustainability of this approach. The depreciation of currencies in developing countries and the impact of possible U.S. protectionist policies may increase interest in alternative investment instruments among Israeli investors. Bitcoin’s rise during periods of crisis is seen as a strong signal about the future role of decentralized financial tools, and the need for strong economies like Israel’s to adapt to these dynamics could significantly contribute to the transformation of the global economic system.