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The past year has been eventful, when looking at developments around bitcoin.

In figure 1, we see the price action charted back to November 8, 2023. We know:

• On January 11, 2024, 11 different bitcoin exchange-traded products with exposure to bitcoin’s “spot” price were approved. We see this as a primary catalyst for the move from roughly $40,000 to roughly $70,000 by April 2024.
• From April 2024 until November 2024, we did not see bitcoin’s price appreciate back to this $70,000 level.
• President-elect Trump has voiced direct support to the bitcoin community and his decisive victory contributed to another short-term spike in bitcoin’s price, even touching $90,000.

Let’s review developments we’re monitoring to discern how these positive “hopes” can contribute to a fundamentally more permissive bitcoin environment in reality.

Figure 1: Bitcoin’s Price Action over the Past Year

Dynamics Leading Up to the Trump Victory

Why was bitcoin’s price trend rather directionless from April 2024 to November 2024? Possible explanations include:

• Post-Halving Market Dynamics: The Bitcoin halving event in April 2024 reduced the mining reward from 6.25 to 3.125 Bitcoin per block, effectively decreasing the rate of new Bitcoin entering circulation. Historically, such halvings have led to price surges; however, the anticipated post-halving rally did not materialize. This deviation from historical pattern may have tempered investor enthusiasm, leading to a consolidation phase rather than a continued upward trajectory.¹
  

• Profit-Taking and Market Sentiment: Following significant gains earlier in the year, investors engaged in profit-taking, leading to selling pressure that hindered further price appreciation. Additionally, waning enthusiasm post-halving and concerns over regulatory actions contributed to a bearish market sentiment, causing Bitcoin to trade below $64,500 by early May 2024.³
• Macroeconomic Factors: Anticipation of Federal Reserve interest rate decisions and a tougher rate outlook influenced investor behavior. The prospect of higher interest rates made risk assets like Bitcoin less attractive, leading to reduced investment inflows and contributing to a decline in Bitcoin's price to below $58,000 ahead of the Fed's decision in early May 2024.⁴

As bitcoin is open for trading 24 hours a day, 365 days per year, there can always be myriad factors influencing its price performance, but it is always useful to consider how different catalysts could be ebbing and flowing in their influence.

Other Policy Makers to Watch

To say that President-elect Trump will be busy is an understatement—he has discussed many promises on many topics throughout his time on the campaign trail. It makes sense to look at other pro-bitcoin policy makers whose policies may have paths to approval under a new Trump administration.

A prominent advocate for Bitcoin, Senator Lummis introduced the "Boosting Innovation, Technology, and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act of 2024," proposing the establishment of a national Bitcoin reserve. The bill aims to bolster the U.S. dollar's position by incorporating Bitcoin into the nation's strategic reserves.⁵

To note some of the key provisions of the proposed act⁶:

1. Strategic Bitcoin Reserve (SBR):

• Establishes a decentralized network of secure storage facilities for Bitcoin across the U.S., managed by the Secretary of the Treasury.
• Designed to bolster national financial security by holding Bitcoin as a strategic asset, similar to gold reserves.
• Emphasizes geographic dispersion for security and resilience.

2. Bitcoin Purchase Program:

• Authorizes the purchase of up to 200,000 Bitcoins annually over five years, targeting a total of 1 million Bitcoins.
• The acquired Bitcoin must be held for a minimum of 20 years, with restrictions on selling or encumbering it, except to retire federal debt.

3. Transparency Measures:

• Implements a Proof of Reserve system with quarterly public reports and third-party audits to ensure oversight and public trust.

4. Consolidation of Government Holdings:

• Mandates that any Bitcoin held by federal agencies, including those from forfeitures, be transferred to the SBR.

5. Voluntary State Participation:

• Allows states to participate in storing their Bitcoin holdings in segregated accounts within the SBR, maintaining state ownership rights.

6. Funding Provisions:

• Utilizes discretionary funds and Federal Reserve remittances for program financing.
• Adjustments to the valuation of gold certificates to offset costs, reflecting modern market values.

7. Property Rights Protection:

• Ensures that the Act does not infringe upon the property rights of private Bitcoin holders, affirming individuals' rights to own, manage and self-custody their Bitcoin holdings.

No act is without controversy, so if we consider some of the possible issues in this version of the BITCOIN Act, we can see⁷:

1. Scale of Government Involvement:

• Critics may view the extensive federal purchase and storage of Bitcoin as market manipulation or government overreach in the private sector.
• The acquisition of 1 million Bitcoins could have significant impacts on market liquidity and global pricing, raising concerns over potential price distortions.

2. Public vs. Private Sector Tensions:

• The establishment of a federal Bitcoin reserve may lead to debates about the role of government in competing with private investors and companies in the crypto space.

3. Long-term Hold Mandate:

• The 20-year mandatory holding period, while aimed at ensuring long-term strategic stability, might be seen as limiting fiscal flexibility and tying up significant resources.

4. Transparency and Security:

• While the Act promotes transparency through public reports and third-party audits, concerns may arise over the sufficiency of these measures, especially regarding digital security and the protection of public trust.

5. Use of Federal Reserve Resources:

• The allocation of Federal Reserve funds and adjustments to the handling of gold certificates could spark debates on fiscal policy implications and potential impacts on other economic priorities.

6. State Participation Terms:

• The voluntary participation of states in the Strategic Bitcoin Reserve may lead to discussions on state versus federal control over digital assets and the terms under which states store their holdings.

Conclusion: We Have to Continually Monitor Communications

We don’t know whether either the BITCOIN Act discussed here—or something that looks substantially like it—will ever become policy. However, it is useful to consider potential policy through this type of lens as opposed to focusing too much on possible changes in different government personnel.

The mere fact that, on July 27, 2024, President-elect Trump took the stage at the Bitcoin 2024 Conference in Nashville, Tennessee, already made a statement.

We now wait for signals that indicate how this campaign trail activity will transform into government policies supportive to the Bitcoin community.

¹ Source: Vicky Ge Huang, & Caitlin Ostroff, “Bitcoin Price Climbs after Supply ‘Halving,’” Wall Street Journal, 4/22/24.

² Source: Clive McKeef, “Bitcoin Falls after DTCC Rules out Collateral for Bitcoin-Linked ETFs,” MarketWatch, 4/27/24.

³ Source: Jack Denton, “Bitcoin Languishes. Brace for More Declines as ‘People Got a Little Too Excited.’” Barron’s, 4/26/24.

⁴ Source: Amanda Cooper, “Crypto Washout Sends Bitcoin below $58,000 ahead of Fed Decision,” Reuters, 5/1/24.

⁵ Source: https://www.lummis.senate.gov/press-releases/lummis-introduces-strategic-bitcoin-reserve-legislation/

⁶ Source: https://www.lummis.senate.gov/wp-content/uploads/BITCOIN-Act-FINAL.pdf

⁷ Source: ChatGPT was used, taking the current text of the BITCOIN Act and pulling out potentially controversial areas.