Trump and Bitcoin: Trading the Post-Election Crypto Surge
Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
The cryptocurrency market has seen an explosive move higher following President-elect Donald Trump’s recent election victory. Cryptocurrencies and related stocks in the crypto ecosystem could see plenty of volatility* in the coming months, presenting potential opportunities for traders looking to play both sides.
Bitcoin has surged to a record high in the aftermath of the contentious U.S. presidential election, surpassing $90,000. The rally has been mirrored in crypto-related stocks, with companies like Coinbase and Robinhood Markets seeing notable gains. The market’s positive response is largely attributed to Trump’s pro-crypto stance and promises to make the U.S. a leading nation in cryptocurrency adoption.
Aside from cryptocurrencies like Bitcoin and Ethereum, there are other ways to invest in the broader crypto universe. For example, crypto-related stocks include companies in businesses like blockchain technology, non-fungible tokens, decentralized finance, and digital asset mining hardware.
The Solactive Distributed Ledger & Decentralized Payment Tech Index* broke out to new highs following the election. The benchmark includes U.S.-listed stocks of companies engaged in distributed ledger or decentralized payment technologies.
Below is a daily chart of the Solactive Distributed Ledger & Decentralized Payment Tech Index, as of November 20.
Source: Solactive, November 20, 2024.
The performance data quoted represents past performance. Past performance does not guarantee future results.
What’s Next for Crypto? Three Catalysts to Watch
Although the crypto industry has built some positive price momentum lately, the space is known for its volatility and sharp sell-offs. In other words, there are potential opportunities to trade on the bearish side as well.
Here are three catalysts that could move the crypto market in the coming weeks and months.
Regulatory Developments: It’s not surprising that Bitcoin and crypto stocks have rallied given Trump’s campaign pledges to make America a hotbed of crypto innovation and even create a Bitcoin strategic reserve. Trump also said he would remove the chair of the Securities and Exchange Commission, Gary Gensler, a vocal critic of the crypto industry, as the AP reports. If the Trump administration is able to implement crypto-friendly regulations, it would be a win for the bulls. If there is pushback, though, it could mean that the recent crypto euphoria was overdone.
$100,000 Bitcoin: This milestone has been a dream of crypto enthusiasts for years, and it may finally be within reach. Investors have always been obsessed with round numbers, and Bitcoin hitting the $100,000 mark would bring a lot of attention to the entire crypto industry. Meanwhile, the relatively recent introduction of Bitcoin ETFs is a signal that more institutions are exploring the crypto space. If Bitcoin does hit six figures, it could be a turbulent ride along the way, providing opportunities for both crypto bulls and bears.
Economic Policies and Inflation: Historically, Bitcoin has been viewed as a hedge against inflation. Some of the policies expected under a Trump administration, such as tax cuts and tariffs, may end up being inflationary. That means crypto traders should keep an eye on monthly U.S. Consumer Price Index (CPI)* reports to see how hot inflation is running. More potential Federal Reserve rate cuts are another catalyst to monitor.
LMBO and REKT: Trading Crypto Both Ways
Traders who have a positive view on the crypto space might consider the Direxion Daily Crypto Industry Bull 2X Shares (Ticker: LMBO), which seeks daily investment results, before fees and expenses, of 200% of the performance of the Solactive Distributed Ledger & Decentralized Payment Tech Index.
On the other hand, bears can express their view with the Direxion Daily Crypto Industry Bear 1X Shares (Ticker: REKT). This is an inverse ETF that seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the Solactive Distributed Ledger & Decentralized Payment Tech Index.
Just remember, these ETFs provide exposure to equities, not actual cryptocurrencies like Bitcoin.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The Solactive Distributed Ledger & Decentralized Payment Tech Index (SOLDLDPT) seeks to track the performance of US-listed securities that have business operations in the field of distributed ledger or decentralized payment technology, which includes the following business fields: blockchain technology, non-fungible tokens, decentralized finance, and digital asset mining hardware.
One cannot invest directly in an index.
Solactive AG is not a sponsor of, or in any way affiliated with, the Direxion Daily Crypto Industry Bull 2X Shares or Direxion Daily Crypto Industry Bear 1X Shares.
Direxion Shares Risks – An investment in a Fund involves risk, including the possible loss of principal. A Fund is non-diversified and includes risks associated with the Fund’s concentrating its investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause prices to fluctuate over time.
Leverage Risk – The Bull Fund obtains investment exposure in excess of its net assets by utilizing leverage and may lose more money in market conditions that are adverse to its investment objective than a fund that does not utilize leverage. A total loss may occur in a single day. Leverage will also have the effect of magnifying any differences in the Fund’s correlation with the Index and may increase the volatility of the Fund.
Daily Index Correlation Risk – A number of factors may affect the Bull Fund’s ability to achieve a high degree of correlation with the Index and therefore achieve its daily leveraged investment objective. The Bull Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Bull Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Bull Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Daily Inverse Index Correlation Risk – A number of factors may affect the Bear Fund’s ability to achieve a high degree of inverse correlation with the Index and therefore achieve its daily inverse leveraged investment objective. The Bear Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Bear Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Bear Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Crypto Industry Investing Risk — Companies in the crypto industry are subject to various risks, including the inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations.
Information Technology Sector Risk — The value of stocks of information technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation, and competition, both domestically and internationally, including competition from competitors with lower production costs.
Financials Sector Risk — Performance of companies in the financials sector may be materially impacted by many factors, including but not limited to, government regulations, economic conditions, credit rating downgrades, changes in interest rates, and decreased liquidity in credit markets.
Additional risks of each Fund include Effects of Compounding and Market Volatility Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs Risk), Cash Transaction Risk, Passive Investment and Index Performance Risk and for the Direxion Daily Crypto Industry Bear 1X Shares, Shorting or Inverse Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of a Fund.