Former President and current Republican candidate Donald Trump promised to make the United States the world’s Bitcoin superpower at the Bitcoin 2024 conference. He vowed to create a strategic Bitcoin reserve for the US government and to replace US Securities and Exchange Commission Chairman Gary Gensler if elected. According to him, Gensler is blocking rather than building the future.
Trump has also become the first presidential candidate to accept campaign donations in crypto. He has reportedly raised $4 million in cryptocurrencies for his campaign.
Risks for the euro and European policymakers
The European Union’s common currency, the euro, and European policymakers face renewed risks from Trump’s crypto push. Stablecoins are mostly denominated in USD, giving them a market monopoly. This could pose a threat to the euro, which is the second-largest reserve fiat currency in the world.
If Trump becomes the next US President, which is increasingly likely, his promises at the Bitcoin 2024 conference on July 27 could provoke an even more impressive bull market than the one we’re in now. These changes could prompt European politicians to reevaluate the current regulatory regime.
Increasing demand for stablecoins tends to boost the dollar
The cumulative stablecoin market cap is currently $172.4 billion, per CMC. The market remains stable despite a 21% drop in trading volume. Dollar backing gives stablecoins price stability. Investors usually hold them on crypto exchanges to trade cryptocurrency. This mirrors the dollar’s dominance in commodity markets, where the value of gold, silver, crude oil, and other assets is also in dollars.
Stablecoin firms and crypto exchanges back these stablecoins by holding a corresponding amount of US dollars in reserve. Increasing demand for stablecoins tends to boost the dollar and weaken the euro.
Capital flow poses a risk to the euro
If Bitcoin’s prominence in the US increases further, the stablecoin issuance rate could increase correspondingly, putting pressure on currencies like the euro. The Eurozone could experience shifts in capital that impact the euro’s stability.
When investor demand for USD-backed stablecoins increases, investors convert their holdings from local currencies into USD, which can result in significant capital outflows from those local currencies. The impact will be pronounced if the shift involves large sums of money. Demand for the euro would also drop in this case.
