Markets
Nobel economists warn Trump’s re-election could reignite inflation, impacting cryptocurrency markets
Photo by Darren Halstead on Unsplash.
Main conclusions
- Sixteen Nobel Prize-winning economists express concerns about Trump’s potential re-election and its economic risks.
- Economists cite rising inflation and instability as the main threats under Trump’s economic policies.
Share this article
Sixteen Nobel Prize-winning economists have warned that Donald Trump’s potential re-election could harm the US economy and reignite inflation, a development with significant implications for the broader crypto market.
The economists Letter, released on Tuesday, argues that Trump’s policies would lead to economic instability and rising consumer prices. They claim that his “fiscally irresponsible budgets” could revive high inflation, contrasting this with praise for President Biden’s economic record, including investments in infrastructure and clean energy.
This warning comes as Trump, now a convicted criminalchanged to a pro-cryptocurrency stance in your campaign. He promised to end what he calls the U.S. government hostility towards cryptocurrency and started accepting crypto donations. This move represents a marked shift from his previous critical views on cryptocurrencies and digital assets more broadly.
“We believe that a second Trump term would have a negative impact on the US economic position in the world and a destabilizing effect on the US domestic economy,” the economists said.
Crypto industry leaders like Cathie Wood support Trump’s presidential candidacy, believing a victory for Trump is “better for our economy.” Founders like the Winklevoss brothers also support Trump despite their donation to the campaign being refunded.
Crypto and Inflation Data
The potential for renewed inflation under a Trump presidency could have mixed effects on the crypto market. While some view Bitcoin as a hedge against inflation, data shows a negative correlation between its price and rising consumer prices. However, cryptocurrencies often see gains when the money supply (M2) grows, which could occur under expansionary fiscal policies.
Recent cryptocurrency market rallies have already raised concerns about potential inflationary impacts. The “wealth effect” of unrealized cryptocurrency gains could boost consumer spending, potentially injecting demand inflation into the economy. This may force the Federal Reserve to reconsider planned interest rate cuts.
The chart below, taken from Perplexity based on data from CoinMarketCap, shows that there is a complex relationship between economic factors and the performance of cryptocurrencies.
The chart shows that cryptocurrency prices, especially for Bitcoin, Ethereum and Solana, have exhibited greater volatility compared to traditional CPI measures over the past year. This volatility could be exacerbated by the economic instability warned by Nobel economists in the event of Trump’s re-election.
The chart indicates that while crypto has seen significant price appreciation, it remains susceptible to sharp corrections. These corrections often coincide with periods of economic uncertainty, which could become more frequent under policies described as “fiscally irresponsible” by Nobel economists. The unpredictable nature of Trump’s policymaking style, as highlighted in the warning, could lead to increased market volatility, potentially deterring institutional investors and slowing the widespread adoption of cryptocurrencies.
The data also shows that energy prices have a notable impact on the overall CPI. Trump’s energy policies, which may differ significantly from current approaches, could lead to fluctuations in energy costs. This, in turn, could affect mining profitability and network security for proof-of-work networks like Bitcoin, potentially destabilizing the broader crypto ecosystem.
Economists’ concerns about international relations under a Trump presidency could also negatively impact the global nature of crypto markets. Strained diplomatic ties could hinder cross-border transactions and collaborative efforts to develop global crypto regulations, potentially fragmenting the market and reducing liquidity.
For the crypto industry, the economists’ warning highlights the complex interplay between macroeconomic policies, inflation and digital asset markets. While Trump’s pro-crypto stance may seem favorable, the broader economic instability predicted by these economists could create a challenging environment for crypto.
The contrasting economic views presented by Trump and Biden, and their potential impacts on inflation and monetary policy, will likely be key factors influencing the trajectory of the crypto market before and after the 2024 US presidential election.
Share this article