It can be hard to make sense of the price of bitcoin, which has swung wildly throughout its history. But in the aftermath of Donald Trump’s presidential victory in the United States, it’s reached unprecedented highs.

Last weekend, it surged past US$80,000 (A$122,492) for the first time. Then, on Tuesday, it briefly flirted with the US$90,000 threshold.

Many other cryptocurrencies also saw a significant boost.

In Trump, the crypto community sees a powerful new friend. Speaking at a major bitcoin conference in Nashville in July, he promised to create a friendlier business environment if re-elected:

We will have regulations, but from now on the rules will be written by people who love your industry, not hate your industry.

So, are things really looking up for crypto? Many of Trump’s plans have caused excitement in the sector – but there’s still good reason to be cautious.

Read more: Trump's economic vision is no longer a 'maybe'. Here's what it might mean for Australia and the world

Less red tape, more crypto

Trump has long been a strong supporter of government deregulation – favouring less intervention in many areas of the economy.

That could reduce regulatory pressure on cryptocurrencies and open the door for more rapid growth and innovation within the industry.

Overt government support could also attract more institutional investors by creating a favourable environment for digital assets.

Trump has flagged a wide range of pro-crypto policies, including building a government bitcoin stockpile, preventing the government from selling its cryptocurrency holdings, and even using cryptocurrency to address the national debt.

Furthering his pro-bitcoin stance, he’s also previously voiced opposition to “central bank digital currencies”, or CBDCs.

CBDCs are a relatively new digital form of money – and the US doesn’t have one yet. However, unlike decentralised cryptocurrencies such as bitcoin, the value of a CBDC is determined by its issuing country’s central bank.

Trump’s previous criticisms of the US Federal Reserve have resonated with many cryptocurrency supporters who have advocated for decentralised financial systems.

A volatile US dollar

A Trump presidency could lead to substantial US dollar volatility against major currencies.

A cornerstone policy of Trump’s re-election campaign has been to impose tariffs of 10–20% on all imports to the US, and 60% on imports from China.

New or escalated tariffs could lead to trade tensions, impacting currency markets. This would likely strengthen the dollar temporarily, as domestic goods become more expensive.

But such uncertainty could also drive market speculation and fluctuations in the dollar.

If the dollar falls, some investors looking for alternatives may turn to cryptocurrencies as a hedge against inflation or currency devaluation.

Geopolitical risk

Trump’s presidency could bring increased geopolitical and domestic political tension. Is cryptocurrency a safe haven in such times? Some proponents have previously touted the asset class as a kind of “digital gold”.

On some occasions during Trump’s first presidency, it may appear to have acted like one.

In 2019, bitcoin’s price surged as US–China trade tensions escalated. It also spiked briefly in early 2020 when Iran struck two US military bases in retaliation for the killing of Iranian General Qassem Soleimani.

Such a reputation may influence investor behaviour. However, previous research has challenged the idea that bitcoin acts as a safe haven, finding its price declined under heightened financial uncertainty.

Other research has found that bitcoin and fellow cryptocurrency Ethereum are not safe havens from many international equity markets. When included in a portfolio, they added to downside risk.

Is the euphoria justified?

The euphoria in the crypto market following Trump’s victory may be understandable. His support for digital currency could benefit investors and industry leaders seeking fewer regulations.

However, these markets remain inherently volatile. Less regulation could amplify this characteristic even further.

If Trump’s deregulation of cryptocurrency leads to increased speculation by investors, it could make the crypto market even more susceptible to bubbles and crashes. Global markets could have a rough ride ahead of them.