Why Bitcoin Leads a Huge Week for Cryptocurrencies

Source The Motley Fool

The crypto market came to life late on Tuesday as it became clear President Trump would win the election. It was likely that either candidate would have been good for the crypto industry, which has led to a rise in crypto values this year, but this may have been a best-case scenario for policy changes.

Bitcoin (CRYPTO: BTC) was the biggest winner from a valuation perspective, climbing 11.3% in the past week as of 3 p.m. ET to a $1.52 trillion market cap. But Ethereum (CRYPTO: ETH) was up 18%, and Dogecoin (CRYPTO: DOGE) jumped 22.6% in that time, according to data provided by S&P Global Market Intelligence.

The election and policy changes ahead

The last four years have been frustrating for cryptocurrency enthusiasts and developers because the regulatory environment has been uncertain, at best. Instead of outlining clear rules, both Congress and the U.S. Securities and Exchange Commission (SEC) have left rules in a gray area and only enforced with legal charges once companies release products.

That's the lack of clarity companies have been talking about, and it's possible that changes. On the SEC level, Chair Gary Gensler will likely be replaced quickly after Trump takes office, and that will change the enforcement environment almost immediately. Rule changes will take time, but that will also follow.

It also looks like Republicans will control both houses of Congress, which means both political appointments and laws can be passed that may favor the industry. We don't know what that looks like yet, but innovation won't happen without some kind of clarity.

Investors bet big on crypto

The SEC did allow Bitcoin and Ethereum ETFs earlier this year, and in less than 36 hours, the Bitcoin ETFs alone saw $1.3 billion of inflows after the election. Those inflows were part of the price increase through simple supply and demand.

We may see even more ETFs if the regulatory environment changes, which could bring even more inflows.

Elon Musk and the Dogecoin pop

When it comes to Dogecoin, there's speculation that Elon Musk's involvement in the campaign could lead to some kind of value for the token. That's a long shot, but it's the kind of speculation that's commonplace in the market today.

This was the biggest meme coin to pop, but it wasn't the only one, with many smaller tokens rising double digits this week.

Where does crypto go from here?

While the increase in values makes some sense if there are regulatory changes, it doesn't mean the increase will last. A lot of the advances in crypto over the past two years weren't with tokens -- it was with the underlying blockchain and stablecoins used for transactions. Even native tokens may not generate value if stablecoins are what we use for transactions.

I think there's a bright future for the blockchain, but the companies building blockchain technology will be the beneficiaries. Speculating on tokens probably won't last, just as we saw in 2022, when a frothy market ended badly for crypto investors.

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Travis Hoium has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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