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Nobel economists warn Trump re-election could reignite inflation, impacting cryptocurrency markets
Photo by Darren Halstead on Unsplash.
Key takeaways
- Sixteen Nobel Prize-winning economists express concerns about Trump’s potential re-election and the economic risks it poses.
- Economists cite increased inflation and instability as the main threats from Trump’s economic policies.
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Sixteen Nobel Prize-winning economists have warned that Donald Trump’s potential re-election could hurt the US economy and rekindle inflation, a development with significant implications for the broader cryptocurrency market.
Economists letterreleased Tuesday, says Trump’s policies would lead to economic instability and higher consumer prices. They say his “fiscally irresponsible budgets” could reignite high inflation, contrasting with praise for President Biden’s economic record, including investments in infrastructure and clean energy.
The warning comes as Trump, now convicted criminalswitched to a pro-cryptocurrency stance in his campaign. He has vowed to end what he calls the United States government hostility towards crypto and began accepting donations in cryptocurrencies. This change represents a marked departure from his previous critical views on cryptocurrencies and digital assets in general.
“We believe that a second term for Trump would have a negative impact on the economic position of the United States in the world and a destabilizing effect on the American national economy,” say the economists.
Crypto industry executives, like Cathie Wood, support Trump’s presidential candidacy, believing that a Trump victory is “the best for our economy.” Founders like the Winklevoss brothers also support Trump, despite donating to the campaign. get a refund.
Crypto and Inflation Data
The potential for inflation to pick up under Trump 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, crypto often sees gains when the money supply (M2) increases, which could happen amid expansionary fiscal policies.
Recent crypto market rebounds have already raised concerns about potential inflationary impacts. The “wealth effect” resulting from unrealized crypto gains could boost consumer spending, potentially injecting demand-pull inflation into the economy. This could force the Federal Reserve to reconsider interest rate cuts expected.
The chart below, taken from Perplexity and based on data from CoinMarketCap, shows that there is a complex relationship between economic factors and crypto performance.
The chart shows that cryptocurrency prices, particularly for Bitcoin, Ethereum and Solana, have shown higher volatility than traditional CPI measures over the past year. This volatility could be exacerbated by the economic instability predicted by Nobel economists in the event of Trump’s re-election.
The chart indicates that while cryptocurrencies have seen significant price appreciation, they remain prone to sharp corrections. These corrections often coincide with periods of economic uncertainty, which could become more frequent under policies that Nobel economists have called “fiscally irresponsible.” The unpredictable nature of Trump’s policymaking style, as the warning points out, could lead to increased market volatility, which could deter institutional investors and slow the mainstream 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 result in 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 cryptocurrency markets. Strained diplomatic relations could hamper cross-border transactions and collaborative efforts in developing global cryptocurrency 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 visions 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.
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