From stocks to Bitcoin Trump's trading sends shockwaves through all markets

After an intense election campaign, American voters have chosen Donald Trump as their 47th president, awarding him victory with 51.2% of the ballots and a substantial margin of nearly 50 million votes. While Trump's win over Democratic candidate Kamala Harris garnered much attention, another significant factor influencing the outcome was the role of crypto-voters.

U.S. stocks witnessed a sharp increase: S&P futures surged by 1.4%, the dollar experienced its largest gains against major currencies since 2020, treasury bonds fell resulting in a rise of over 0.1 percentage points in yield, and Bitcoin skyrocketed to an all-time high above $75,000.

Though not all votes are counted yet, these market movements clearly indicate that investors anticipate Trump's second administration will closely resemble the first: a steady stream of policies (tax cuts, deregulation, tariffs) aimed at spurring economic growth, corporate profits, and inflation simultaneously.

For those on Wall Street who have been tracking the "Trump Trade," this moment reflects validation, even if it ultimately proves fleeting.

“If you've held the Trump trade for the past six weeks, it has performed exceptionally well,” said Ed Al-Hussaini, a rates strategist at Columbia Threadneedle Investment. “The question is whether these winning streaks can sustain themselves forever, and if now is a good time to lock in profits.”

Despite the generally positive signals from investors, the market fluctuations serve as a stern warning.

The rise in treasury yields highlights concerns that Trump's policies may further inflate the already swollen budget deficit and reignite the inflationary spiral that policymakers have only recently managed to suppress following the pandemic. This indicates that external pressures will be on Washington leaders to keep spending in check.

Ahead of the vote, fund managers continued to bet on stocks even after the S&P 500 index rose by 23% in 2024, preparing for the best performance in a pre-election year in nearly nine decades. Asset managers “held record net long positions in U.S. stock index futures,” according to a Tuesday note from Morgan Stanley's quantitative and derivative strategy department.

Long positions in the S&P 500, Nasdaq 100, and Russell 2000 increased to about $400 billion, nearly double the level from two years prior, while total short positions dipped below $100 billion for the first time since 2015. The note mentioned that investments among retail investors were also on the rise.

According to the latest data from the Commodity Futures Trading Commission, hedge funds and other speculative traders held approximately $17.8 billion in bullish dollar positions.

“The more emphasis placed on tax cuts and deregulation in the short-term agenda, the more favorable it will be for risk assets,” wrote George Saravelos, head of currency research at Deutsche Bank AG, in his report.

Bitcoin Hits All-Time High

As a result of Trump's victory and his pro-crypto promises, Bitcoin surged to an unprecedented $75,000. The entire cryptocurrency market reacted positively.

Popular political tokens such as DOGE, ELON, MAGA, and DJT trended on social media as investors bet that Trump, who actively engages with digital assets, would win the White House.

Leading experts, including Bernstein, are already predicting Bitcoin’s price could climb to $90,000. But this is just the beginning.

Previously, a Deutscher analyst suggested that Trump’s win may lead to an "instant surge," with Bitcoin potentially reaching a new historic peak of $100,000 by the end of this year.

Conversely, other analysts expect to see some profit-taking from the Trump trade in the near term and believe it's premature to determine how the market will react moving forward.