Bitcoin mania?
An examination of asset class returns over the last twelve months, including residential property in various capital cities, reveals Bitcoin’s superior performance.
Source: Montgomery
Many investors will immediately dismiss Bitcoin as an asset class, and that’s understandable because it doesn’t produce an income and apparently has no industrial purpose. But the same arguments can be applied to gold and yet the yellow metal remains a fixture in market reports and investment narratives. Bitcoin has also now survived several attempts on its life, and yet its market capitalisation is now over US$2 trillion, with between US$800 billion and US$1 trillion invested through ETFs, corporate treasuries, government reserves, DeFi, and by retail investors.
Bitcoin’s recent rise, with a 60 per cent surge since November 2024 to highs of US$111,000 by May 2025, can be attributed to several influences, including U.S. economic and digital currency policies under President Donald Trump, shifting perceptions of U.S. exceptionalism, and dynamics surrounding the U.S. dollar.
So what’s led to another meteoric rise for Bitcoin? The following are just some of the factors that various proponents, investors and commentators have attributed Bitcoins surge to.
1.Trump’s pro-crypto policies and the Strategic Bitcoin Reserve
Trump’s administration has adopted a crypto-friendly stance. This is a sharp reversal from his earlier scepticism when he called Bitcoin a “scam” in 2021. Those policies have fueled optimism in the crypto market.
In March this year, Trump signed an Executive Order to establish a Strategic Bitcoin Reserve, signalling U.S. government support for cryptocurrencies as a store of value, akin to gold. The reserve includes Bitcoin, Ethereum, XRP, Solana, and Cardano, with the U.S. already holding 200,000 Bitcoins from law enforcement seizures.
While crypto enthusiasts see the reserve as a hedge against inflation and a move to position the U.S. as the “crypto capital of the world,” it’s vital to understand that the Reserve’s establishment is designed to permit the U.S. government’s need to seize and hold confiscated currency not to speculate and invest.
The announcement however led to immediate price spikes, with Bitcoin rising initially to US$94,000 and other cryptocurrencies surging up to 60 per cent.
Trump’s administration has also moved to ease crypto regulations, including creating a task force to develop a comprehensive regulatory framework and repealing Biden-era policies perceived as anti-crypto.
The replacement of Securities and Exchange Commission (SEC) Chair Gary Gensler, a crypto skeptic, with Paul Atkins, a pro-crypto figure, signals a favourable environment. It’s fair to say the regulatory clarity has attracted institutional investors, with more than US$5.5 billion flowing into digital asset funds in early 2025.
Further, Trump’s policies promote U.S. dollar-backed stablecoins, which rely heavily on U.S. Treasuries as collateral (for example, USDC and USDT, two stablecoins, hold over US$140 billion in Treasuries combined).
According to experts, this strengthens the crypto ecosystem while indirectly supporting the dollar’s role in global finance, encouraging crypto adoption.
Combined, these policies have generated bullish sentiment, with analysts like Standard Chartered’s Geoff Kendrick predicting Bitcoin could reach US$500,000 during Trump’s term.
2.U.S. Exceptionalism and declining dollar dominance
U.S. exceptionalism – the belief in the U.S.’s unique economic and geopolitical strength is been questioned as Trump’s policies, particularly tariffs, challenge and perhaps threaten the U.S. dollar’s global dominance. This has indirectly supported Bitcoin’s rise as an alternative asset.
By way of example, Trump’s aggressive tariff policies, announced on “Liberation Day” in April, raised concerns about the U.S. dollar’s role as the world’s reserve currency. Tariffs increase the cost of imported goods, potentially shrinking global trade and reducing demand for dollars, as non-U.S. companies face higher costs to access dollars for trade. Simultaneously, tariffs create space for Bitcoin as a “digital gold” or alternative store of value. While one might argue the merits of the view, the fact is Bitcoin is outperforming all asset classes, including gold, which has been the second-best performing asset class.
Meanwhile, as trust in U.S. stocks, Treasuries (China’s holdings dropped to US$772 billion in September 2024), and the U.S. dollar is questioned and tested, investors are diversifying into Bitcoin. Some analysts and institutions suggest Bitcoin is a macro hedge against deteriorating U.S. fiscal conditions, with rising federal debt and interest costs driving institutional flows via ETFs. The shift is amplified by foreign central banks reducing U.S. Treasury holdings, pushing investors toward assets like Bitcoin that are not tied to U.S. monetary policy.
Further, Trump’s fiscal policies, including the Big Beautiful Bill Act, characterised by high spending and tax cuts, will increase U.S. deficits and debt, which could lead to inflation and further dollar devaluation. It’s just another reason many see Bitcoin as an attractive hedge.
It’s worth noting that foreign central banks increased their holdings in Treasuries by only 11 per cent in 2024, compared to a 28.5 per cent increase in issuance. The mismatch, along with a poor 20-year bond Auction earlier in the year, raises concerns about the Treasury market’s ability to absorb debt, potentially increasing risk premiums and financial instability.
Understandably, Bitcoin is seen by some – especially its promoters – as a potential solution, with stablecoins absorbing three per cent of maturing short-term Treasuries, outpacing the holdings of some countries. Some promoters go further and suggest that excess liquidity from money printing could flow into Bitcoin to protect against dollar devaluation.
Bitcoin’s oft-promoted fixed supply of 21 million coins renders it a potentially scarce asset, and thus often compared to gold. If Trump’s policies drive inflation through increased borrowing and tariffs, more investors might turn to Bitcoin to preserve value. The Bitcoin Policy Institute – yes, it’s a thing – argues that a strategic reserve could enhance financial resilience, though critics warn of volatility risks if the government becomes a major market player.
3.Market dynamics and speculation
Beyond perceived favourable policy, market dynamics and speculative fervour have also contributed to Bitcoin’s rise.
Whether you approve or not, Trump’s family has heavily invested in crypto ventures, including World Liberty Financial, a $TRUMP meme coin, and a US$2.5 billion Bitcoin treasury by Trump Media and Technology Group. These ventures, worth an estimated US$2.9 billion, have raised conflict-of-interest concerns but have also heightened crypto’s visibility. Trump’s campaign ties to crypto donors, who contributed millions, have generated even more market enthusiasm.
And while more volatility is likely, if not certain, Bitcoin has shown resilience, outperforming major equity indices. Currently, volatility has dropped to 18-month lows, which has been positive for its appeal as a stabilising diversifier in asset portfolios.
4.China
I have recently written about China’s deepening deflation, with consumer prices falling another 0.1 per cent and producer prices dropping 3.3 per cent in May 2025. If China’s export surplus continues to grow on the back of weak domestic demand, the nation may face further trade barriers, including U.S. tariffs, which could exacerbate global disinflation. The environment potentially strengthens Bitcoin’s appeal as a non-sovereign asset, especially as other countries like Switzerland and Brazil explore crypto reserves. A “crypto arms race” anyone?
Risks
There’s always a downside, and Bitcoin will experience future bouts of unpopularity.
The resultant volatility, which we have witnessed before, reminds one of its speculative nature.
What could trigger the next sell off?
Because Bitcoin has no fundamental value, it relies on more people buying and more people ‘not’ selling. Sentiment drives those decisions, and any number of factors could trigger a change in sentiment.
Strategic reserves could distort markets, with governments influencing prices and facing difficulties when they liquidate holdings. Ethical concerns about Trump’s personal crypto ventures also raise questions about policy motives. Additionally, tariffs may disproportionately hurt low-income households, potentially negating economic gains from crypto. Lastly, Bitcoin’s recent rise may have little to do with fundamentals and more to do with a “Trump-inspired mania.”
It’s impossible to know where Bitcoin will head next, but it’s probably time to accept that Bitcoin is not going away.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
