In October 2025, Bitcoin experienced its largest single-day crash since the COVID-19 pandemic, a 20% decline that economist Paul Krugman attributed not to economic fundamentals but to threats against Donald Trump’s political standing. 1 Krugman’s diagnosis was stark: Bitcoin had evolved from a purported monetary innovation into a “Trump trade,” an asset whose valuation depends primarily on expectations of political favoritism.2
This claim raises a fundamental question for financial markets and regulatory policy: Can an industry purchase hundreds of billions of dollars in asset value through campaign contributions, and what does this reveal about market efficiency and the integrity of financial regulation?
Using daily returns data from January 2024 through November 2025, I provide the first systematic empirical test of this proposition. My findings reveal a striking pattern: Bitcoin exhibits no continuous correlation with daily political sentiment, yet generates massive abnormal returns at specific political junctures, most dramatically, a +5.63% abnormal return when Trump met with cryptocurrency industry leaders days after his electoral victory.3 These results validate a nuanced version of Krugman’s thesis and provide direct market evidence that the cryptocurrency industry’s $200 million in campaign contributions successfully purchased regulatory forbearance worth possibly several hundred times that amount.4
The Cryptocurrency Industry’s Political Investment
The relationship between Donald Trump and the cryptocurrency industry fundamentally changed during the 2024 presidential campaign. Despite previously calling Bitcoin a “scam,” Trump systematically cultivated industry support through explicit quid pro quo arrangements. 5 Cryptocurrency-related entities donated over $200 million to Trump’s 2024 campaign, making the industry the largest corporate donor.6
In exchange, Trump made specific, concrete regulatory promises, including firing the SEC chair, opposing central bank digital currencies, and creating a “strategic crypto reserve.”7 Following his victory, Trump delivered, installing industry-friendly officials and halting SEC enforcement actions.8 This sequence creates a natural experiment for assessing the effect of political patronage on asset prices.
Three Tests of Political Sensitivity
I employed three complementary approaches to test Bitcoin’s political dependence: (1) correlation between daily approval rating changes and returns; (2) factor regression models controlling for equity and gold markets; and (3) market-adjusted event studies of 30 high-impact political and macroeconomic events.
Finding 1: No Continuous Political Correlation
Daily changes in Trump approval ratings exhibit near-zero correlation with Bitcoin returns (r = 0.04).9 This decisively refutes the hypothesis that Bitcoin continuously tracks Trump’s political fortunes and suggests markets efficiently treat daily political noise as irrelevant to cryptocurrency’s fundamental value.
Finding 2: Bitcoin as a High-Beta Risk Asset
Factor regression analysis confirms that Bitcoin’s returns are predominantly driven by the S&P 500 (β = 0.97),10 confirming its status as a high-beta risk asset, not the “digital gold” its proponents claim. Gold returns showed no significant relationship with Bitcoin, undermining the safe-haven narrative.11
Finding 3: Massive Asymmetric Returns at Uncertainty-Resolving Events
While the average abnormal return across all events was significant at the 10% level, the real story is the dramatic heterogeneity. A handful of uncertainty-resolving events generated enormous returns, while others had negligible or even negative effects.12
- November 15, 2024: Trump meets with crypto industry leaders (Coinbase and Ripple): +5.63% Abnormal Return
- January 20, 2025: Inauguration Day: +2.92% Abnormal Return
- November 5, 2024: Election Day: Trump Victory: +1.07% Abnormal Return
- March 6, 2025: Trumps issues Bitcoin Strategic Reserve Executive Order: +1.06% Abnormal Return
The fact that the post-election meeting generated a return over five times larger than Election Day itself is telling. It indicates that markets failed to fully price the regulatory implications of Trump’s victory even after the outcome was known. The information about Trump’s pro-crypto promises was publicly available for months, yet it was substantially underpriced until uncertainty was definitively resolved through direct engagement.
The $167 Billion Return on Political Investment
The cumulative abnormal returns from Election Day through the early policy actions total approximately 10.7%.13 Applied to Bitcoin’s ~$1.5 trillion market cap at the time, this translates to roughly $160 billion in market value created by the expected regulatory shift.
This represents an 800-to-1 return on the industry’s $200 million in campaign contributions, one of the most effective regulatory capture efforts in modern American political economy. This calculation is conservative, excluding gains in other cryptocurrencies, crypto equities, and the value of future regulatory forbearance.
Implications for Market Efficiency and Regulation
This pattern of returns reveals a market with selective inefficiency. While it efficiently filters out daily political noise, it is inefficient at processing major political events that resolve regulatory uncertainty. The substantial abnormal returns after Trump’s victory and subsequent meetings suggest that publicly available information about the regulatory consequences was not fully incorporated into prices, challenging the semi-strong form of the Efficient Market Hypothesis.14
The policy implications are profound:
- Evidence of Regulatory Capture: The market itself has quantified the staggering value of regulatory forbearance. The 800x return on political investment creates an almost irresistible incentive for industries to pursue regulatory capture, with significant social welfare costs.15
- Campaign Finance Reform: These findings provide powerful evidence for advocates of stricter campaign finance laws. The current system allows for the purchase of policy outcomes that generate private gains at public expense.
- Questioning Cryptocurrency Fundamentals: The dependence of Bitcoin’s value on political patronage, rather than technological utility or adoption as currency,16 raises fundamental questions about its long-term viability and true social value.
Conclusion
Bitcoin has indeed become a “Trump trade,” but not in the simplistic way often portrayed. Its dependence on political favoritism is episodic, manifesting in massive price jumps when regulatory uncertainty is resolved. The cryptocurrency industry’s successful purchase of regulatory forbearance, generating an astronomical return on political investment, represents a stark case study in regulatory capture and rent-seeking behavior. For regulators, legislators, and legal scholars, these findings underscore the urgent need to fortify financial regulation against political capture and to reassess the fundamental value, and cost, of the cryptocurrency experiment.
ENDNOTES
1 See The Economic Times, Crypto Market Crash: BTC, ETH, and Altcoins Plunge; Billions Lost in Sudden Weekend Panic, (Oct. 13, 2025), https://m.economictimes.com/news/international/us/crypto-market-crash-october-2025-bitcoin-ethereum-and-altcoins-plunge-billions-lost-in-sudden-weekend-panic.
2 Paul Krugman, How Crypto Became a Trump Trade, SUBSTACK (Oct. 14, 2025), https://paulkrugman.substack.com/p/how-crypto-became-a-trump-trade; Paul Krugman, Reminder: Crypto Is a Trump Trade, SUBSTACK (Nov. 19, 2025), https://paulkrugman.substack.com/p/reminder-crypto-is-a-trump-trade.
3 For a detailed presentation of the event study methodology, full regression results, and tables of abnormal returns, see David Krause, The Trump Effect: An Event Study of Asymmetric Bitcoin Market Responses to Political News 15-18 (SSRN Working Paper, November 24, 2025), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5798822.
4 Ian Vandewalker, Unprecedented Big Money Surge for Super PAC Tied to Trump, BRENNAN CTR. FOR JUSTICE (Aug. 5, 2024), https://www.brennancenter.org/our-work/analysis-opinion/unprecedented-big-money-surge-super-pac-tied-trump.
5 Mary-Ann Russon, Donald Trump Calls Bitcoin ‘a Scam Against the Dollar’, BBC NEWS (June 7, 2021), https://www.bbc.com/news/business-57392734; Fatima Hussein, Donald Trump’s Campaign Says It Will Begin Accepting Contributions Through Cryptocurrency, AP NEWS (May 21, 2024), https://apnews.com/article/trump-crypto-fundraising-fec-22f96d5727903f7cb0c0951152e2b0fa.
6 Vandewalker, supra note 4.
7 Kimberlee Krüesi, Trump Calls for US to Be ‘Crypto Capital of the Planet’ in Appeal to Nashville Bitcoin Conference, AP NEWS (July 27, 2024), https://apnews.com/article/donald-trump-bitcoin-cryptocurrency-stockpile-6f1314f5e99bbf47cc3ee6fc6178588d.
8 Pillsbury Winthrop Shaw Pittman LLP, Trump 2.0: A New Era for the Regulation of Cryptocurrency and Digital Assets (June 2, 2025), https://www.pillsburylaw.com/en/news-and-insights/cryptocurrency-digital-assets-trump.html.
9 See Krause, supra note 3, at 5 (discussing correlation analysis).
10 Id. at 5 (presenting factor regression results).
11 Id. at 5 (discussing gold coefficient).
12 Id. at 6 (event study results and Table of Selected Event Abnormal Returns).
13 Id. at 6 (discussing cumulative abnormal returns and elements of the ROI calculation).
14 Eugene F. Fama, Efficient Capital Markets: A Review of Theory and Empirical Work, 25 J. FIN. 383, 384 (1970).
15 See generally George J. Stigler, The Theory of Economic Regulation, 2 BELL J. ECON. & MGMT. SCI. 3, 3-5 (1971).
16 Fumiko Hayashi & Andrew Routh, U.S. Consumers’ Use of Cryptocurrency for Payments, FED. RESERVE BANK KAN. CITY PAYMENTS SYS. RESEARCH BRIEFING (Sept. 24, 2025).
David Krause is an emeritus associate professor of finance at Marquette University. This post is based on his recent paper, “The Trump Effect: An Event Study of Asymmetric Bitcoin Market Responses to Political News,” available here