How the crypto market react?

Bank of America says the U.S. economy is heading toward instability as Donald Trump takes office, despite releasing strong data on employment and retail sales. This has brought renewed focus on the future of the crypto market. Will it prosper?

According to reports from GenderBank of America said Jan. 20 that data on employment, retail sales and core inflation remained strong, with core inflation at 3.2%. However, this inflation number is above average, meaning the Fed no longer has room to cut rates further.

In December 2024, the Fed cut rates by 25 basis points, following a 25 basis point cut in November and a 50 basis point cut in September. Fed Chairman Jerome Powell said at his December meeting that no further rate cuts would take place unless economic data improved.

The sentiment against further rate cuts is also reflected in Polymarket’s votes, where over 96% of punters believe there will be no rate cut in January.

Today, Bank of America believes that with the looming presidency and, with it, Trump 2.0 policies, there could be extreme security and fiscal uncertainty, and this could affect economic managers differently.

Trump’s protectionist policy

Protectionist policies are government measures, i.e. tariffs or taxes on imports and trade restrictions, taken to protect local industries from foreign competitors.

During Donald Trump’s first term, these measures had a considerable impact on the stock market. For example, tariffs on Chinese goods and steel have helped U.S. manufacturers by reducing competition. Nonetheless, they increased costs for businesses that relied on imports, such as automakers and high-tech companies, because reported by the Tax Foundation in May 2024. This has continually affected the ups and downs of the market, especially during the trade war with China.

Reuters further reported that the same thing could now happen again via the re-emergence of Trump with 60% tariffs on Chinese goods, affecting the economy; this will drive up prices and create uncertainty for investors in the global market.

What’s next for the crypto market?

The future of cryptography will largely depend on the interaction between Trump’s politics and the decisions of the Fed. While protectionist policies typically exert their effects on traditional financial markets through inflation, supply chain disruptions and investor confidence, they will have a knock-on effect on cryptocurrency markets.

Protectionist measures generally increase the costs of goods and services, which are usually passed on to consumers by businesses.

For example, if inflation remains high, Bitcoin (BTC), often seen as a hedge against inflation, is likely to continue to gain traction, especially as the president has strongly supported Bitcoin Reserve. Additionally, if the Fed does not cut rates to curb inflation, crypto could gain popularity as a store of value.

While many analysts are positive about the creation of a Bitcoin reserve, some in the crypto market are also voting against. Since January 20, Polymarket voters are only 57% confident that a Bitcoin reserve will be created in the next 100 days.

Additionally, Trump’s pro-crypto policies could also pave the way for institutional adoption of cryptocurrencies by supporting pro-crypto laws, which could potentially dampen dispute against crypto exchanges that the SEC had imposed under the Biden administration.

Overall, although protectionist policies could raise the prices of some imports of technology goods, thereby slowing the development of blockchain, Trump’s pro-crypto stance would partially offset this by promoting the growth of the sector.