The Scoop: Rising political risks and renewed macro uncertainty soften crypto's post-election surge
This column was co-written by Frank Chaparro, director of special projects at The Block, and Laura Vidiella of MNNC Group. The views expressed in this column are their own and do not reflect the opinions of their employers.
Risk is reemerging in the crypto market. If you missed my interview with Milk Road, I outlined the key factors driving crypto markets over the past year. For long-time readers of this newsletter, you might be tired of hearing about these factors: macroeconomics, politics and market flows. Typically, when all three are negative, crypto prices struggle. The post-Trump victory rally was largely fueled by the belief that the president-elect would alleviate the anti-crypto stance of SEC Chair Gary Gensler .
However, recent market jitters have led some to reassess whether political risk is resurfacing. After all, the former president is known for his unpredictability, shifting focus week to week—sometimes even eyeing territorial acquisitions in the Western Hemisphere. Despite this, based on my conversations with people in Washington, even if crypto remains a low priority for the incoming administration, any shift away from Gensler’s approach is seen as a positive change.
While a national Bitcoin reserve is unlikely, there is potential for regulatory agencies to adopt a more cooperative stance towards the crypto industry. This would represent a significant shift, as agencies like the SEC have the authority to make exceptions and create rules more suited to crypto, fostering innovation. At the very least, there will likely be more openness to dialogue between companies and regulators. According to Kristin Smith of the Blockchain Association, this shift is unlikely to reverse.
If political risk diminishes, the focus returns to macroeconomic factors, which are closely tied to market flows. When investors sense macroeconomic risk, they may hesitate to invest in spot Bitcoin ETFs . And macro risk is indeed mounting. Goldman Sachs issued a note Wednesday morning indicating an increased probability of an equity market drawdown, rising to nearly 30%. While this is above the unconditional probability, it remains below previous peaks, with the most severe outcomes historically occurring after the probability crosses 35%.
Inflation, which seemed under control, is resurfacing. If this trend continues, the Federal Reserve might slow its rate-cutting cycle, reducing the positive impact on global risk assets that many anticipated at the end of last year. Additionally, concerns about Trump's tariff policies could exacerbate inflationary pressures.
I think it’s also worth mentioning that we are dealing with an expectations issue. Investors might adopt a risk-off stance leading into the inauguration, especially after the post-election pump, considering how equities have traded. Despite maintaining a "modestly pro-risk" stance for early 2025, Goldman Sachs is advising clients to consider hedging their positions.
Crypto markets should take note.
The Block’s Frank Chaparro serves up the latest headlines, charts, trends, and views on crypto and DeFi from around The Block, Twitter, and The Scoop pod. Subscribe to The Scoop newsletter , which hits inboxes on Tuesday and Friday mornings.
