Inflation Risks and Crypto: How Trump’s Policies May Reshape Markets

• Kevin Khang warns Trump’s policies could trigger inflation, affecting labor markets and the crypto industry’s operational costs.
• Trump’s proposed “crypto czar” role may streamline regulation and potentially support institutional crypto adoption under his administration.

Kevin Khang, a Senior International Economist at Vanguard Group, has expressed concern about anticipated inflationary pressures under Donald Trump’s presidency, according to WSJ. Two main elements, according to Khang, might cause inflation: tariffs and immigrant deportation.

Should tariffs be implemented, imported items would become more expensive, therefore driving consumer prices higher. Deporting immigrants at the same time would probably cause the labor market to tighten and result in better salaries as companies fight for a limited workforce.

Although these laws might coincide with some political objectives, they could have major knock-on repercussions in many other economic areas, including the crypto industry.

Inflation’s Ripple Effect on Crypto Investments 

Long a consideration in investment decisions, inflation might have a significant effect on the crypto market. Traditional fiat currencies generally lose buying value when inflation rises, and assets like Bitcoin and other cryptocurrencies appeal more as hedges against economic uncertainty.

Faced with the decline of value in conventional financial systems, investors often swarm to decentralized currencies. Nonetheless, under the Trump presidency, the measures that can cause inflation could also provide further regulatory difficulties for the crypto industry.

To add to the difficulty, Goldman Sachs estimates that the S&P 500 might climb by 10% following year. Expectations of corporate earnings and economic progress anchor this hope in terms that might represent the confidence in Trump’s economic policies by the market.

Still, a robust stock market does not always translate into a suitable habitat for cryptocurrencies. Should stocks do well, they might eclipse crypto investments, particularly for institutional players who often allocate funds according to relative returns.

Conversely, should inflation occur and undermine faith in established markets, it could spark once more interest in Bitcoin and other digital assets.

Regulatory Shifts and Economic Challenges Ahead 

Beside that, as we previously reported, policies of the Trump government also probably affect the regulatory environment for crypto. Previously showing interest in helping the crypto sector, Trump’s government has hinted at designating a “crypto czar” to simplify regulatory procedures among federal agencies, including the SEC and CFTC.

This cooperation might help to clarify things and promote institutional acceptance of digital assets. Still unknown, though, is how these initiatives would balance other economic concerns like lowering inflation.

Inflation would present difficulties for the operational dynamics in the crypto sector as well as for the general state of the economy. Higher labor costs brought on by a limited workforce, for example, could raise running expenditures for crypto exchanges, mining operations, and blockchain businesses.

Simultaneously, import goods taxes could drive hardware necessary for crypto mining’s prices up, therefore lowering their profitability. These cost constraints could discourage fresh market competitors and slow down innovation, hence perhaps impeding the expansion of blockchain technology and decentralized finance (DeFi).

Notwithstanding these possible obstacles, cryptocurrency has shown to be strong in erratic economic times. Bitcoin’s story as “digital gold” gained traction and the asset saw a notable increase in past inflationary times.

This resilience emphasizes the function of crypto as a substitute for investment class under financial turmoil. Nonetheless, it is important to understand that elements outside macroeconomic patterns also affect the performance of the crypto market: technological breakthroughs, acceptance rates, and legislative changes.

On the other hand, effective January 2025, Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), has announced his departure. Under Gensler’s direction, the SEC obtained $2.7 billion via enforcement activities for aggrieved investors.

According to CNF, his leaving signifies a sea change for the legal environment around virtual currency. The Trump administration’s proposal to appoint a crypto czar would bring in a new age of simplified regulation and perhaps business support.