Bitcoin Slump Reflects Trump’s Unpopularity, Renowned US Economist Claims

US President Donald Trump’s flagging popularity is behind Bitcoin’s recent declines, according to Nobel Prize-winning economist Paul Krugman.

In his latest Substack article titled “The Trump Trade is Unravelling,” Krugman argued that Donald Trump’s aggressive embrace of Bitcoin and crypto more generally has tied the fortunes of digital assets very much to his own political fortunes.

At this point Bitcoin is largely a Trump trade. Bitcoin’s price surged after Donald Trump won last year, and its recent plunge coincides with a series of Trump political setbacks.

Paul Krugman, US economist

Krugman explained that Bitcoin’s success has become entangled with Trump largely because the President and his family have in effect “received massive bribes from the crypto industry,” which in turn they have reciprocated with “pro-crypto policies.”

“So how should we understand Bitcoin’s recent crash? Think of it as the unraveling of the Trump trade. Trump remains as determined as ever to reward the industry that made his family rich, and those around him are as determined as ever to make America safe for predators of all kinds,” Krugman said. 

He said the mechanics of how Trump’s waning popularity and diminishing power are impacting Bitcoin’s price are simple: 

Trump’s power is visibly diminishing, so the price of Bitcoin, which has in effect become a bet on Trumpism, has plunged.

Paul Krugman, US economist

Krugman argues that Trump’s low popularity ratings in recent polls, combined with scandals such as the Epstein affair, have weakened his support both from Republicans in Congress and from his own die-hard MAGA supporters. As of November 27, The Economist news outlet finds 57% of Americans disapprove of Trump.

That has left the President much diminished and potentially unable to fully achieve his pro-crypto policy reforms.

“Is it a stretch to link Trump’s political woes to the price of crypto?” Krugman asked, answering “no…a weakened Trump is less able to work his will on all fronts, including his efforts to promote crypto.”

Related: Bitcoin Premium in Michael Saylor’s Strategy Stock Nears ‘Crypto Winter’ Lows, But TD Cowen Still Sees 200% Upside

Crypto a Haven For Criminals Exploiting Naive Investors, Says Krugman

Krugman, a long-time crypto critic, also shared his opinion that Bitcoin has a single use case – crime. He said BTC has been shown to be ineffective for both money/payments and as an inflation hedge.

“It isn’t a hedge against financial risks — on the contrary, the price of Bitcoin has generally moved in the same direction as the AI-related stocks driving the stock market these days, but with even greater volatility,” he said.

To the extent that Bitcoin has a use case, it is covering your financial tracks: crypto facilitates anonymous transactions that don’t leave a paper trail. Such transactions aren’t necessarily criminal, but many are.

Paul Krugman, US economist

Many would argue with Krugman on the issue of anonymity, since every Bitcoin transaction can be traced, making it much less anonymous than good old-fashioned cash. Indeed, this very traceability has been behind the recent rise of privacy coins such as Zcash and Monero.

Related: Deutsche Bank Blames Risk-Off Mood and Hawkish Fed for Bitcoin’s Six-Week Slide

Krugman further argued crypto is increasingly being used to prey on naive investors.

“Crypto — or, worse, shares in companies that buy crypto with borrowed money — is heavily sold to naïve investors who don’t realize what they’re getting into,” Krugman wrote. “They do well when Bitcoin’s price is rising, but many probably don’t understand how badly they can suffer when it falls.”

He said the only reason Bitcoin ever bounces back from steep falls is because people who invest in Bitcoin are part of a cult. 

This cult status has allowed Bitcoin to recover from setbacks and scandals that would have sunk any normal investment, because true believers respond to any drop in its price by piling in more than ever. And maybe that will happen again.

Paul Krugman, US economist

But due to the ‘Trump trade’ factor, the Nobel laureate expressed his doubts over whether Bitcoin would recover this time.

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