Cryptocurrencies and politics: what are the connections?

Donald Trump's victory in the US presidential election also had economic implications. These include the rise in the price of Bitcoin to $80,000. The relationship between cryptocurrencies and politics was analysed by Peter Gruber, Lecturer-Researcher at the Faculty of Economics of Università della Svizzera italiana (USI), on TeleTicino, and by Prof. Edoardo Beretta, Full Professor at the Faculty of Economics of USI, in an article published on Ticinonline.

After Trump's victory, the price of Bitcoin has increased significantly and could potentially reach $100,000 before the republican president takes office in January. This figure is particularly impressive, considering that Bitcoin's price dropped to around $15,000 just two years ago. "It shows that Bitcoin has evolved into a political currency, making its value dependent on political events: if Trump had lost the election, the cryptocurrency's value would likely be lower," explained Peter Gruber.

The future president of the United States of America was sceptical of cryptocurrencies until recently, but in July, he formed an alliance with Bitcoin supporters. Professor Edoardo Beretta identified several reasons that may have prompted Trump to change his stance on cryptocurrency. He highlighted Bitcoin's growing popularity and rising prices as significant factors. Additionally, the professor pointed out that the US is in a favourable position for Bitcoin to increase in value: "It is home to what is known as Big Tech, which is transforming everyday life through digitisation and continuing the legacy of American "soft power." These companies are also highly focused on financial innovation, managing institutional funds capable of moving billions of dollars. Additionally, following China and preceding India, the US are the largest energy producers globally.".

As Peter Gruber explained, the future president's attitude change includes three electoral promises to favour Bitcoin: "Firstly, he plans to implement lighter regulations. Secondly, he intends to prohibit the Federal Reserve (the US Central Bank) from creating a digital dollar, leaving this lucrative area entirely to the private sector. Finally, he has promised to establish a strategic reserve of currency by having the state purchase 1 million Bitcoins over a period of five years, which would likely lead to an increase in their price". According to Professor Beretta, the complete freedom that defines the initial phase of cryptocurrencies cannot last forever. He believes that, in the medium to long term, "a compromise will likely need to be established between the regulatory forces of various public authorities and the decentralised nature of cryptocurrencies". When asked about the duration of Bitcoin's appreciation, Professor Beretta explained that "the situation is quite uncertain from an economic and financial perspective". Any transition phase tends to involve financial instability. Among the determining factors should not be forgotten "the new governance of the SEC and the Federal Reserve and the approach they will have towards cryptocurrencies", however "it is likely that the appreciation will last as long as investors' expectations (mostly institutional funds) support Trump. In other words, until different updates come along that scale back what was predicted in the election campaign".

Is it, therefore, worth investing in Bitcoins? According to Professor Beretta, "the volatility of the cryptocurrency market is undoubtedly a risk factor for beginners"; therefore, weighting and critical analysis are necessary. Buying Bitcoin can represent speculation, in the case of a short-term purchase, or an investment, in the case of a medium- to long-term purchase.

While the United States is currently an appealing hub for cryptocurrency companies, Peter Gruber believes that Switzerland can also remain competitive in this sector. Trump has focused his attention on Bitcoin, the first cryptocurrency, but it's important to note that it is not the only one. "Bitcoin has limited use outside of buying and reselling. In Switzerland's blockchain sector, there is an effort to create productive products and projects that support investment initiatives". Peter Gruber suggests that the attention Bitcoin is receiving due to American politics could positively affect the entire blockchain ecosystem. This attention may particularly benefit productive and sensible projects that, while not the main focus of Trump's interest, stand to gain from his engagement with Bitcoin.

The full interview with Peter Gruber, aired on TeleTicino, is available at the following link ( from minute 22:30), and the interview with Professor Edoardo Beretta, published on Ticinonline and written by Paolo Contangelo, is available at the following link.