Prospects of the Cryptocurrency Market Under the Impact of President Trump's Interest Rate Reduction Policy

Analysis of market fluctuations and latest policies (Updated as of January 25, 2025)

1. Background: The Rise of Cryptocurrencies After Trump’s Inauguration

Since President Donald Trump’s re-election in January 2025, the cryptocurrency market has experienced significant fluctuations. On the day of his inauguration, Bitcoin (BTC) broke its historical record, surpassing 109,071∗∗,reflectinginvestoroptimismaboutthecommitmenttolowerinterestratesandafavorablelegalenvironmentfordigitalassets.However,justafewdayslater,Bitcoinadjustedto∗∗109,071∗∗,reflectinginvestoroptimismaboutthecommitmenttolowerinterestratesandafavorablelegalenvironmentfordigitalassets.However,justafewdayslater,Bitcoinadjustedto∗∗101,867, highlighting the market’s sensitivity to policy uncertainties.

According to experts, this move not only reflects expectations for loose monetary policy but also stems from Trump’s decision to sign an Executive Order establishing a “Digital Assets Task Force” to create a clear regulatory framework for the blockchain industry. This is seen as a strategic step to position the U.S. as the “cryptocurrency capital of the world.”

2. Direct Impact of Interest Rate Reduction

2.1. Stimulating Investment in Risky Assets

The interest rate reduction policy pledged by Trump is creating a “cheap money” effect, encouraging investors to shift from traditional channels (such as bonds and bank savings) to higher-yielding assets, including cryptocurrencies. Low interest rates reduce capital costs, enhance liquidity, and increase demand for Bitcoin as a hedge against inflation.

According to FXStreet analysis, the Federal Reserve’s (Fed) anticipated interest rate cuts in 2025 could push Bitcoin to 150,000–150,000–200,000. This aligns with historical trends where Bitcoin tends to rise in low-interest environments.

2.2. Shifting Market Sentiment

As interest rates drop, a “risk-on” sentiment dominates. Individual and institutional investors are pouring more capital into cryptocurrencies to maximize returns. For example, the $TRUMP meme coin (linked to Trump’s image) surged 645% within 48 hours of the inauguration, though it later corrected sharply due to technical adjustments.

3. Policy Moves Supporting Cryptocurrencies

3.1. Transparent Regulatory Framework

The Executive Order signed on January 23, 2025, focuses on:

Establishing a national digital asset reserve, including cryptocurrencies seized from legal actions.

Banning the development of CBDCs (central bank digital currencies) to protect privacy and promote private innovation.

Supporting USD-backed stablecoins, strengthening the dollar’s position in the global financial system.

These policies are expected to attract $36 billion from Bitcoin ETFs into the U.S. market while helping companies like Ripple (XRP) and Solana (SOL) expand their influence.

3.2. Appointing Pro-Crypto Personnel

Trump has appointed David Sacks (co-founder of PayPal) as the “Czar of AI and Cryptocurrency,” alongside Paul Atkins (a crypto advocate) to lead the SEC. These figures are expected to drive balanced regulations that foster innovation while protecting investors, a stark contrast to the rigid approach under the Biden administration.

4. Challenges and Potential Risks

4.1. Short-Term Volatility

Despite long-term optimism, the market faces significant correction risks. For instance, Bitcoin dropped 9.5% in the first three days of January 2025 due to uncertainties about the interest rate reduction timeline. Meme coins like TRUMP and MELANIA are even more susceptible to crowd psychology.

4.2. Energy Infrastructure Shortages

The widespread adoption of cryptocurrencies requires a stable power supply for mining operations. However, the U.S. grid currently meets only 3–32% of the demand if EV and mining activities expand rapidly. This raises the need for investments in renewable energy to ensure sustainability.

4.3. Conflicts of Interest

The World Liberty Financial project (linked to Trump’s family) raised $300 million through tokenization but faced criticism over transparency. Experts worry that Trump’s dual role as president and crypto market participant could create conflicts of interest.

5. Long-Term Forecast: Bitcoin at $200,000 and the Altcoin Boom

5.1. Bitcoin Continues to Lead

According to Bitwise and VanEck, Bitcoin could reach 180,000–180,000–200,000 by the end of 2025, driven by ETF inflows and its limited supply (only 21 million BTC). The participation of institutions like MicroStrategy (holding 444,262 BTC) further strengthens this upward trend.

5.2. Altcoins Seize Opportunities

As Bitcoin stabilizes at higher levels, capital may flow into altcoins like Solana (SOL) or XRP. Solana, with its fast transaction speeds and low fees, surged 85% in the first week after Trump’s inauguration. ETFs for XRP and Solana are also under consideration, paving the way for a new wave of investments.

5.3. Global Trends

The U.S. is not alone in the digital currency race. China, Japan, and Russia are building their own cryptocurrency reserves, creating a “financial technology arms race.” This accelerates the broader acceptance of cryptocurrencies as an alternative to traditional systems.

Conclusion: Opportunities Amid Caution

The cryptocurrency market stands at the brink of a “tsunami of opportunities” under Trump, from low-interest policies to supportive regulations. However, investors should note:

Monitor Fed policies closely: Interest rate fluctuations could trigger sell-offs if expectations are unmet.

Diversify portfolios: Focus on Bitcoin and altcoins with strong technological foundations like Solana or Ethereum.

Beware of meme coins: Avoid speculative investments in projects lacking transparency, such as $TRUMP.

With the combination of flexible monetary policies and technological innovation, cryptocurrencies could reshape the future of global finance—provided investors balance profits and risks wisely.