- Bitcoin price has underperformed the market in the past few months.
- The stock market is being boosted by the ongoing AI spending.
- Trump’s policies have contributed to Bitcoin’s weakness.
Bitcoin price is stuck in a technical bear market after falling 38% from its all-time high. In contrast, top indices such as the S&P 500 and the Nasdaq 100 have jumped to record highs this year.
BTC price has dropped by nearly 20% over the last 12 months, while the two indices have jumped by 28% and 38%, respectively. This is a major divergence as Bitcoin has a long track record of beating the stock market.
Nasdaq 100 and S&P 500 are Boosted by AI Spending
The main reason why the Nasdaq 100 and S&P 500 indices are beating Bitcoin this year is the ongoing AI boom. Just on Wednesday, the top companies in the US announced that they will spend over $725 billion in capital expenditure this year. A few months ago, their guidance was of spending $650 billion this year.
These huge numbers are coming at a time when the US economy is going through stagflation. Stagflation is a period characterized by slow economic growth and high inflation. The US economy expanded by just 2% last quarter, while analysts predict inflation will surge to 5%.
The top gainers in the S&P 500 Index this year are all in the AI industry. Sandisk stock has jumped by 350% this year, while companies like Intel, Western Digital, Seagate Technology, and Lumentum have more than doubled. Other top gainers include AI giants such as Corning, ON Semiconductor, Micron, and Vertiv Holdings.
President Trump Has Contributed to the Bitcoin Price Rally
Trump has contributed to Bitcoin’s ongoing price weakness despite his strong support for the industry. First, his policies, such as tariffs and the ongoing Iran war, have made inflation sticky and reduced the likelihood that the Federal Reserve will cut interest rates anytime soon.
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Second, Trump has not implemented some of the policies he campaigned on. For example, he has not established the Strategic Bitcoin Reserves, even as Republicans control the Senate and the House of Representatives. He has also not implemented the policy that will have retirement funds flow to cryptocurrencies.
Third, and most importantly, Trump and the Securities and Exchange Commission (SEC) have eased industry regulations. Indeed, Paul Atkins, the head of the SEC, has closed most lawsuits filed by his predecessor. The impact is that the crypto industry has become less safe. Indeed, hacks worth over $1.6 billion have happened in the last 12 months.
Investors have also lost trust in the industry because of Trump’s actions. Together with his wife, they launched meme coins that have cost investors billions of dollars. Trump then launched World Liberty Financial, which has since become an alleged money-laundering tool.
For example, World Liberty Financial owns the USD1 stablecoin that has over $4.4 billion in assets. $2 billion of these funds came from the United Arab Emirates, which invested in Binance. The funds are earning World Liberty millions of dollars a year.
In short, by easing regulations, investors lost faith in the industry. Investors would welcome certainty that bad actors will be brought to justice.
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