USA Crypto Under President Trump: The Good, The Scary, and the Volatile
Disclaimer: In this blog, we will attempt to walk a thin line: writing about politics while remaining apolitical. We will measure success by either 1) lack of offense or 2) equally weighted offense.
At present, U.S. politics feel markedly polarized. While not exactly a quantitative statement, we have some decent qualitative observations. Right and left agree on few, if any, issues; rhetoric is inflammatory and reactionary; and single sources of facts are scarce. Social media, short attention spans, and lust for controversy amplify the loudest voices / factions; assassination attempts are forgotten in a matter of weeks; and gaslighting is normalized. It is amongst this political turbulence that Donald Trump was reelected the 47th President of the United States.
Without a doubt we live in volatile times: major global wars, immigration conflicts, explosion of AI and tech, and the rapid rise of populism, to name a few integers. So perhaps it is not surprising that our politics and economies reflect the same underpinning social volatility that surrounds us. And perhaps it makes sense that we have elected a volatile individual during particularly volatile periods.
To remain true to our disclaimer, when we use the term “volatile” we do so as a descriptive adjective, not necessarily a pejorative one. But let’s be honest, President Trump, by strict definition, is a volatile guy. Policy swings can be dramatic and occur suddenly (see tariffs); his signature phrase is “you’re fired”; and his tirades are stuff of legend. Donald Trump may be successful at many things, but he most certainly would make a poor monk.
All of this is to say: we are generally living in volatile macro times and President Trump adds even more volatility to that mix. Again, not necessarily bad, but a state of condition. A quick look at the VIX will show that traditional markets are quantitatively approaching levels of volatility last seen during Covid days.
And let’s look at actual price activity for both the S&P and BTC since late-January tariff activity:
So, what does this all mean for crypto. President Trump was heralded by many in the industry as being the savior-in-waiting for USA crypto, both making big promises and cultivating big support. He said all the right stuff, made the right appearances, and has genuine crypto business interests. With all that said, after initial post-election market euphoria (BTC briefly topped $106 K), a broader reality has settled in, with prices and volumes dramatically compressing the other way and now remaining mostly stagnant, aside from a news-inspired rip / dump. The reality of President Trump for crypto is less rosy than anticipated but full of promise. In this blog we will take a deeper dive into both the good and the scary while sharing perspectives on navigating volatility that may stick for at least another 4 years or so.
The Good
When President Trump landed again in the Oval Office, he did so with immense energy and a flurry of activity, some of which has been and will be quite beneficial for the crypto industry. Let’s review.
Gensler out; Atkins in - Former SEC Chairman Gary Gensler, long considered the bugaboo of USA crypto, has been replaced by ardent crypto supporter, Paul Atkins, who has been emphatic that “fixing crypto regulation” is “one of his top priorities”. The regime change and shift in tone have been dramatic, and should precede the Holy Grail: a consolidated regulatory framework. It is expected that Chairman Atkins will lead the administration’s pro-crypto regulatory charge.
Crypto Task Force and Czar - If a pro-crypto Chairman was not enough, the Trump administration has tacked on a Crypto Task Force (led by Commissioner Hester Peirce) and added David Sacks as Czar. Both Commissioner Peirce and Czar Sacks (lol) are also ardent and longtime crypto supporters and are tasked with focusing and streamlining regulatory progress and clarity. The current focus of both is removing impediments to institutional-grade custody and settlement.
Lawsuit Dismissals - Under former-Chairman Gensler, the SEC lobbed dozens of lawsuits, particularly targeted against the largest (and largest American) companies in crypto, from exchanges to service providers to investment managers. In a volte-face that has enabled legal budgets to be slashed across-the-board, the SEC has or is in process of dropping many of those major lawsuits, including the ones against Coinbase, Kraken, Gemini, Binance, Cumberland DRW, Ripple, and the Hawk Tuah Girl, to name a few. The new administration is sending the message that the USA is open for business from the major crypto firms, and new entrants should not be fearful of legal action, provided they are not outright committing fraud.
SAB 122 - In a sick circular joke of sorts, SAB 122 (delivered as an Executive Order) overturns SAB 121, an onerous accounting rule that required custodians to count crypto assets under custody as liabilities on their balance sheets. Such a requirement created a huge barrier for the large-scale proliferation of the types of custodial solutions required by institutions. Unlocking crypto settlement and custody is one of the keys to unlocking institutional participation, and even more clarity should be added with an official regulatory framework.
Federal Crypto Reserve (Kind Of) - President Trump signed an executive order establishing the Strategic Bitcoin Reserve, utilizing approximately 200,000 BTC seized from previous federal operations. These holdings primarily originate from high-profile cases, including the Bitfinex exchange hack, the Silk Road darknet marketplace, and recoveries linked to the James Zhong case. Modeled as a "digital Fort Knox," this reserve aims to enhance national financial security by holding Bitcoin as a strategic national asset. This decision underscores Trump’s ambition to solidify America’s leadership in digital finance.
Mining Support - The Trump administration has actively promoted domestic Bitcoin mining operations, emphasizing energy independence and economic growth. New incentives and reduced regulatory hurdles have spurred significant investment, revitalizing mining operations, particularly in states with abundant renewable energy resources, such as Texas.
DeFi Support - Trump repealed an IRS rule that had expanded broker definitions to include decentralized finance (DeFi) platforms, significantly reducing the tax reporting burden on these entities. The repeal has ignited criticism over potential increases in tax evasion and less transparent financial practices, though we would like to think these will be considered in a consolidated regulatory framework.
The Scary
Crypto has matured to the point that it is more correlated to traditional finance alternative and tech sectors than ever before, a great long-term development, but not pleasant when alternative assets are largely suffering. What seems to be weighing us down?
Tariffs - Historically, tariffs have negative effects on the economy, domestically and abroad. Tariffs often 1) disrupt supply chain, 2) create higher prices for consumers (due to increases on imported goods / components), 3) reduce consumer choice / price competition, 4) fuel inflation, 5) slow growth, and 6) cause further trade disputes / retaliation. Further, President Trump’s tariffs are being imposed in a context that is more globalized than ever before. While it may be noble to want to bring large-scale manufacturing back to the United States, our economy has fundamentally shifted and so has the global economy. Present-day markets (macro, alternatives, and crypto) have not reacted well to these tariffs, and alternative assets such as crypto will typically underperform in compressed environments.
Unpredictability - Markets are mostly rational and the Trump Administration has shown it will issue major policy in a dramatic and sudden manner. While this may be a tactic of sort, markets are inclined to interpret these moves as uncertain. Markets dislike uncertainty because it makes it difficult to make informed, logical decisions. Uncertainty also makes it more difficult for investors to value investments properly, generally reduces investment activity across-the-board, create a confidence negative-feedback-loop, and influence asset shifts to fixed income.
Navigating Volatility
So, on one side we have quite a few positive, potential market catalysts that should benefit crypto. On the other, we have certain macro factors that are squeezing every area of investment, notably alternative assets. With these forces at play, market volatility will be natural, and there are tried-and-true methods employed to manage volatility that are particularly applicable to crypto, including:
Strategy Selection - Volatility can be opportunistic for a variety of arbitrage, momentum, and options strategies that thrive on quantitatively and systematically executed trades exploiting price gaps, derivative dislocations, and market trends / breakouts / reversals. These strategies should implement carefully considered risk management programs.
Reassessment of Risk Tolerance - In accordance with strategy selection, it is crucial to reassess risk tolerance in volatile periods, during which potential investment losses can be outsized (particularly with respect to naked, long holdings). What is the max loss scenario for your investments / positions? What is your own max loss tolerance and what are your liquidity needs?
Scaling Into Positions - Live performance talks. Scale into strategy buckets appropriate for a given regime, and thoughtfully scale into those positions with comfort and visibility with clear expectations of no vol., low vol., mid vol., and high vol. performance.
Disciplined Use of Stop Losses - Stop-loss orders are designed to managed risk by preventing investments from declining significantly. Stop-loss limits are determined by the historical performance of investments / strategies, especially during periods of similar volatility (among other factors).
Diversification / Hedging - The familiar phrase “don’t put all your eggs in one basket” applies well here. No single investment / strategy is the best year-over-year, and different conditions affect each strategy differently. Diversification both lowers risk and increases returns, particularly across non-overlapping strategies.
Conclusion
We live in a volatile world, socially, politically, and economically, and Donald Trump adds to that volatility. The promise of a Trump Presidency for crypto is, to borrow one of his words, huge. However, crypto now operates within a macro context, and so will be negatively affected by tariffs, uncertainty, and other macro moves that compress market. This dynamic will create meaningful swings in the form of idiosyncratic pumps, pullbacks, and rallies that will be difficult (or impossible) to time. A full-on bull run for crypto is now reliant upon macro escape velocity.
As we await that velocity and meander through choppy environments, a range of arbitrage, market making, and momentum strategies can still deliver attractive risk-adjusted returns. That said, these approaches must be evaluated in the context of risk tolerance, reasonable sizing, disciplined use of stops, and thoughtful diversification, all core to Valmar’s DNA.
We are happy to continue this discussion in more depth, and provide more details about how Valmar successfully navigates through volatility. In the meantime, stay focused and disciplined.