President Donald Trump added new relevance to Bitcoin over the weekend after tweeting about it in a negative way. Interestingly enough, Bitcoin actually rose in price after these tweets.
One likely reason being put forward for the appreciation in price is that Trump’s acknowledgment of Bitcoin means that is being perceived as a threat by the government. This would instantly add legitimacy to Bitcoin and give added incentive to sell.
The last 18 months of cryptocurrency experiencing a winter has had people worried that it would disappear. So with the recent price surge and the President of the United States actually tweeting about Bitcoin, it feels safer than ever to buy Bitcoin.
Breaking Down Trump’s Outburst
Trump’s comments were spread out over a 3-tweet thread that began with the below:
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.”
And cumulated into this:
“We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”
The issue with these comments is that the USD is in direct competition for dominance with Bitcoin in the eyes of the government. It is the same reason that the Libra Project is receiving pushback from Congress.
A Deeper Analysis
U.S. Treasury Secretary Steven Mnuchin held a press conference on July 15th discussing both Bitcoin and Libra and the risks they presented. His worries aligned with Trump’s comments about illegal activity and overly speculative investments, but these are both easily brushed off with simple facts about how the U.S. dollar is complicit in much more illegal commerce and price swings being a result of Bitcoin slowly “searching for its value”.
From the perspective of the U.S. Government, Bitcoin’s success could mean the US Dollar’s replacement. This would mean terrible things for U.S. national debt, as the Federal Reserve wouldn’t be able to inflate it away as easily if there were a lower demand for dollars. It also is a threat in terms of taxable receivables and how much more difficult it would be to collect owed taxes if a large amount of commerce was being conducted this way.
Gold has long held a similar position to Bitcoin in terms of what it represents to investors, and with recent comments by Federal Reserve Chairman Jerome Powell about how Bitcoin is a speculative store to value that could be considered an alternative to gold, we are learning how much the government is truly paying attention when it comes to cryptocurrency.
To many, this tweet represents the beginning of a large power struggle about the structure of the U.S. financial system. Next week will see the beginnings of hearings regarding Facebook’s Libra Project, and as we hit record-breaking new highs in the performance of the U.S. economy, more and more tension builds.
What will happen if the stock market goes through a crash and the economy slows down? An increasing rivalry between BTC and the USD, as well as continued input and investigation from the U.S. Government, are putting the two currencies on a collision course. Should the economy reverse, we may see a very different dynamic play out in terms of who is willing to buy Bitcoin.