Bitcoin's rally is facing headwinds from Trump's various crypto trades, experts say

Key Takeaways

Bitcoin had its worst weekly performance thanks to a strong dollar and Trump's tariff plans.
Despite short-term challenges, long-term structural tailwinds for Bitcoin and digital assets remain intact.

Bitcoin's rise of more than 45% after the November 5 presidential election had already lost steam. Analysts expect more turmoil ahead as President Trump's proposed tariff plans and strong employment figures drive bond yields higher, strengthen the dollar and weigh on so- digital assets.

“Bitcoin's problem right now is the strong dollar,” Zach Pandl, head of research at Grayscale Investments, said. CNBC reportednoting that the recent Fed signal helped to some extent to strengthen the dollar.

Bitcoin Had A Strong Start This Week, Recovering $102,000 On Monday, CoinGecko data presentations. However, the rally was short-lived; the leading crypto asset fell below $97,000 the next day and extended its slide towards the end of the week.

“I would attribute the pullback in the last two days largely to the market starting to realize that not all aspects of Trump's policy agenda are going to be positive for Bitcoin ,” Pandl said of the recent decline, adding that Trump's proposed tariff plans introduce uncertainty. into the market.

Trump is considering declaring a national economic emergency to implement his plans for universal tariffs, CNN reported Wednesday. This, together with related economic policies, could create a range of inflationary pressures. However, no final decision has been made regarding this declaration so far.

While there was initial hope for a pro-crypto environment under the Trump administration, conflicting signals about the level of taxes could create volatility and negatively impact risk assets like Bitcoin.

Persistently high interest rates

Stronger-than-expected payroll numbers in December 2024 suggest the Fed may have less urgency to cut rates to stimulate the economy. Following the report, investors have lowered their expectations for near-term interest rate cuts.

As latest data from CME's FedWatch Tool, market participants are leaning towards a probability that the Fed will keep interest rates unchanged during the upcoming meeting on January 28-29, with a probability of 97%.

The Fed cut rates by 25 basis points last month, but also delivered a hawkish message indicating a cautious approach moving forward. The central bank predicted just two rate cuts this year, down from previous forecasts of more cuts due to continued inflationary pressures and economic conditions.

With a cautious Fed and uncertainty about Trump's economic agenda, “risk assets may face a near-term decline, despite the long-term structural upsides for Bitcoin and digital assets remains intact,” according to Alex Thorn, head of research at Galaxy Digital .

Pro-crypto legislation may take some time

Potential positive effects of pro-crypto legislation may not come quickly as Congress is expected to prioritize non-crypto issues over the next three months, according to JPMorgan analyst Kenneth Worthington.

However, Worthington is confident that Congress will eventually shift its focus back to digital assets and pass important crypto-related legislation, such as potential frameworks for market stability and structure .

The New York Digital Investment Group (NYDIG) has a similar view.

In recent times reportNYDIG head of research Greg Cipolaro points out that immediate changes to crypto policy are unlikely. He points to various government processes, such as official appointments and confirmations, which may delay the implementation of new policies.

The analysis also notes that other legislative priorities may take precedence, further delaying crypto-specific initiatives despite a generally positive outlook for digital assets from the proposed positions at Trump.