Trump's return: What will be the future trends of cryptocurrency, U.S. stocks, and the dollar?

Four years ago, after Trump's failed re-election campaign, he stated in his last public speech during his term that he would return in some way. Now, Trump has secured victory, successfully fulfilling his promise, which means that starting from January 20, 2025, the United States will enter the "Trump 2.0 Era."

Since announcing his candidacy, Trump's campaign slogan of "Make America Great Again" has focused on several important areas such as manufacturing, taxation, trade, immigration, and the environment. Changes in policy often become a watershed moment for market trends. From the potential of the stock market to the volatility of cryptocurrencies and the movement of the dollar, the future trends of various assets are hotly debated, as investors seek to capture opportunities in the new political cycle.

Cryptocurrency Welcomes a New Surge

Since the end of October, Trump's winning probability on major prediction platforms has been fluctuating, and Bitcoin, as the most direct asset of the "Trump trade," has also been rising and falling. The fate of Bitcoin and the U.S. election seems to be more closely intertwined than ever.

During the campaign, Trump's compelling promises and deep ties to interests have injected a strong impetus for further growth in the crypto market. First, Trump promised to take measures to ensure America's leadership in the cryptocurrency field, planning to include Bitcoin in the national reserve and to fire the SEC chairman, known as the "crypto killer." Second, Trump himself is deeply involved in the crypto market, having issued NFTs multiple times and recently frequently promoting tokens issued by his family on social media.

Data from security.org: Currently, 40% of American adults own cryptocurrency.

In addition, Elon Musk, who is regarded as the "number one contributor" to Trump's victory and mentioned his name 11 times in a three-minute victory speech, is also a supporter of Bitcoin and Dogecoin. During the critical phase of the election, Musk frequently mentioned Dogecoin, causing it to soar, and it has now doubled in value. Therefore, it can be anticipated that whether it is to fulfill campaign promises, expand family profits, or give back to supporters, Trump will have sufficient motivation to introduce policies that boost the crypto market after being elected.

The market is actively responding to the potential growth of the crypto market. Within two days of Trump's election, the total market capitalization of cryptocurrencies grew by 14.5% from $2.2 trillion to $2.52 trillion, while related crypto stocks and ETFs in the U.S. stock market were heavily bought, indicating that the influence of Trump's policies has begun to manifest in the market.

Tax Cuts Support U.S. Stock Earnings

In Trump's policy blueprint, the U.S. stock market is seen as one of the biggest winners. The day after Trump's victory, the three major U.S. stock indices hit record highs, with the S&P 500 index rising by 2.5%, marking the largest post-election day increase in history. The Dow Jones rose by 3.57%, the largest increase in two years, and the Nasdaq closed up by 2.95%, with most tech stocks rising. Tesla's stock price surged nearly 15% overnight, reaching its highest level since July 2023, while Trump Media Technology, prison stocks, crypto concept stocks, bank stocks, and energy stocks all experienced significant gains.

Trump's policies advocating for domestic tax cuts, emphasizing technology, and encouraging fossil energy have all positively impacted the U.S. stock market to some extent. Especially, the long-term benefits of tax cuts support the sustained growth of corporate earnings and the economy. In sectors like finance and traditional energy, Trump's policies tend to reduce regulation and support domestic extraction and fossil fuel use, which will bring positive impacts to related markets and are expected to outperform the broader market. Considering Trump's active support for the development of artificial intelligence and his lenient regulatory attitude, there is also some support for tech stocks.

Data shows that October of this year was one of the months with the lowest volatility in the U.S. stock market during the election year, reflecting that investors generally reduced their positions to avoid risks before the election. Now that the outcome is decided, subsequent actions to increase positions may help the U.S. stock market welcome a broad rally at the end of the year. The underperforming small-cap stocks in the U.S. this year may perform better than large-cap stocks under the expectation of tax cuts, and with Trump's support for the return of manufacturing, cyclical stocks in the U.S. stock market should also show some performance.

However, it is necessary to be cautious that Trump's significant tariff increase policies may have a negative impact on the economy and inflation. It is expected that U.S. stock market volatility may increase in the future.

Dollar Continues to Strengthen

Stimulated by Trump's victory, the dollar index surged nearly 2% on Wednesday, marking the largest single-day increase in nearly two years and reaching a three-month high. All other currencies came under pressure, with the yen falling over 1.9% to a three-month low, the offshore yuan dropping below 7.2 for the first time in over three months, and the euro declining over 1.8% towards its worst day in over four years, hitting a four-month low.

With Trump's return to the White House, the dollar is expected to continue strengthening. Trump's trade protectionist policies and tax cuts may also be actively implemented after he takes office. These measures could drive up U.S. inflation, and the Federal Reserve will maintain high interest rates to prevent the economy from overheating, further pushing the dollar into a new upward cycle, thereby impacting global currencies, especially emerging market currencies. At the same time, Trump's plans to withdraw from multilateral institutions may suppress growth in other parts of the world, thereby enhancing the dollar's attractiveness.

Gold Favored in the Medium to Long Term

After Trump's victory, the gold market experienced a short-term correction, with spot gold recording its largest single-day drop in five months the day after the election. Trump's economic policies raised market concerns about potential inflationary policies while pushing up U.S. Treasury yields. Additionally, the outcome of the U.S. election eliminated market uncertainty, leading to a rebound in risk appetite trading, which suppressed short-term safe-haven demand for gold.

Although gold is under pressure in the short term, due to frequent geopolitical conflicts and its anti-inflation characteristics, the market remains bullish on gold's medium to long-term trend. Gold prices are influenced by two pricing logics at the macro level: U.S. inflation and fiscal policy. Rising U.S. inflation will drive gold to appreciate relative to the dollar; while the fiscal logic reflects the synchronization of gold prices with the U.S. federal deficit rate, sustained fiscal expansion undermines the dollar's credibility, thus enhancing gold's allocation value. Furthermore, Trump's foreign policy may further differentiate the global monetary system and economic cycles, stimulating the "de-dollarization" process and increasing demand for gold.

From the rise of cryptocurrencies to the prosperity of U.S. stocks and the strength of the dollar, investors will face many opportunities in the political cycle of the new government. However, Trump's trade policies and tax cuts also come with certain risks, reflecting the complexity of the policies.

At the same time, the market is watching whether Trump's policies can be effectively implemented. According to PolitiFact statistics, 23% of Trump's policies during his first term were fully realized, such as raising tariffs on imported goods to the U.S., restricting illegal immigration, and withdrawing from the Paris Climate Agreement. 22% of the policies were partially fulfilled, meaning some compromises were made. 55% of the policies were not fulfilled, such as investing in U.S. infrastructure and restoring American manufacturing.

Fulfillment rate of Trump's commitments during his first term

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