Why The Crypto Market Could Drop After Trump's Inauguration

The historical data suggests that crypto markets generally experience a slowdown after the U.S. presidential inauguration. A new study by TS Lombard sheds light on this cyclical phenomenon, particularly pronounced during Republican transitions.

Trump’s inauguration could slow the rise of the crypto market

The analysis of American electoral cycles reveals a recurring pattern for financial markets. Experts from Bloomberg and Macrobond Financial have identified a clear trend: risky assets, including cryptos, typically record strong gains in the weeks following the presidential election, before taking a pause after the inauguration. This phenomenon is particularly pronounced during Republican victories, as emphasized by a recent study from TS Lombard.

Scott Chronert, a strategist at Citi, also recommends caution in the face of a potential post-election rally. The analyst particularly suggests taking profits if the S&P 500 exceeds 6100 points, which is about 5% above current levels.

The data also shows that this consolidation period is only temporary, with a recovery typically observed a few months after the new president’s installation.

Evolving correlations

The current environment, however, may differ from previous cycles. According to Binance’s research, the traditional correlation between bitcoin and U.S. stock markets is significantly weakening. Since March 2024, the correlation coefficient between bitcoin and the Nasdaq over 30-day rolling windows has dropped to 0.46, a five-year low.

Ethereum, however, maintains a higher correlation with U.S. tech stocks, around 0.66 according to MacroAxis.com. This divergence suggests a possible maturation of the bitcoin market, which may now react differently to U.S. political events.

Ryan Lee, chief analyst at Bitget Research, nevertheless anticipates a potential 30% correction in bitcoin before the resumption of a new bullish cycle, which could bring its price back to around 70,000 dollars.

The consensus among investors, according to MV Global, predicts a continuation of the rise of the crypto market until the second half of 2025, after the new president’s installation. This outlook tempers fears of a prolonged negative impact of the political transition on the sector.