Even for a man known for his love of hyperbole, Donald Trump’s landmark crypto legislation in July was a stretch. Labelled “the Genius Act,” its passage and the anticipation of its signing lit a fire under the price of Bitcoin for the first nine months of this year, carrying it to unimaginable levels. Then it flamed out.
While Bitcoin remains the world’s most popular cryptocurrency and has gained widespread acceptance in traditional financial circles, it has suddenly hit turbulence. This is partly due to the US president’s attempt to shield the crypto sphere from regulation, which has had unintended side effects, particularly for Bitcoin. Trump’s new legislation has inadvertently undermined Bitcoin’s last useful purpose and delivered a boost to an increasingly popular alternative: stablecoins.
The Rise of Stablecoins and Tether
Stablecoins, particularly Tether, have emerged as a significant player in the crypto world. Unlike Bitcoin, which has a publicly available ledger, Tether offers users an avenue to fly under the radar. Tether’s backers guarantee that one US dollar will always equal one Tether stablecoin, providing a sense of security and stability.
Initially conceived as a bridge between traditional fiat currencies like the US dollar and cryptocurrencies, Tether has become a tool for those operating in the shadows. It allows for fast and cheap transactions while avoiding pesky rules and global banking regulations, all while being pinned to the US greenback.
“It is the financial equivalent of being able to turn up at the airport, open a secret door and go straight on to the plane, without any X-rays, passport inspections, customs controls or intrusive questions,” wrote Oliver Bullough in The Economist.
Bitcoin’s Volatility and the Impact of Legislation
Since mid-October, Bitcoin has plunged from a record $US126,000 to well below $US90,000, a drop of more than 30 percent. It recovered slightly over the weekend, but investors, particularly those who have jumped aboard late, have been left reeling.
The rout began on October 10, the day Donald Trump announced a new round of 100 percent tariffs on China. Although he reversed the decision a few days later, the damage had been done. Bitcoin tumbled, and the falls quickly accelerated, driven by “leveraged positions” — Bitcoin purchases funded by debt.
During the October crypto meltdown, many traders were using platforms such as Hyperliquid, an automated, non-custodial, smart contract operator. As Bitcoin prices fell, it began selling large amounts of the cryptocurrency, creating a cascade. Around 160,000 traders had their holdings stripped from them, with the biggest single trader losing $US96.5 million.
Bitcoin’s Future in Question
Bitcoin was born during the tumult of the global financial crisis, took hold during the social media-driven paranoia of the pandemic, and was catapulted to respectability during the second Trump ascendancy. However, it has never realized its stated goals and has no useful purpose beyond speculation.
There are increasing concerns that, given its growing acceptance among financial institutions, a plunge in Bitcoin could add to selling pressure elsewhere as traders sell assets to repay debt. Bitcoin is now behaving less like the digital gold it was once hailed as and more like a high-risk, high-volatile punt.
Research firm Chainalysis calculated that last calendar year, around $US41 billion of crypto linked to illegal activities were exchanged globally as stablecoins cut costs and time while avoiding scrutiny.
As Bitcoin’s role diminishes, questions arise about why superannuation funds are still dabbling in it. To date, only AMP has admitted to taking the crypto plunge, but among self-managed super funds, there is growing acceptance, with reports that up to $1.8 billion has been invested in the cryptocurrency.
As the crypto landscape evolves, the future of Bitcoin remains uncertain. Devotees who have hung on over the years have struck it rich, but the question remains: What can drive it from here? And why do crypto enthusiasts measure their wealth in US dollars?
