Since the significant events on Nov. 5, the cryptocurrency market has witnessed an astonishing surge of over 40%. This upswing is fueled by Donald Trump's pro-crypto stance, instilling optimism for a new era of digital asset growth. The general consensus is that a pro-crypto administration could bring about more favorable regulations and a welcoming environment for crypto development, even potentially leading to the U.S. government adding Bitcoin to its reserves.

Unlock the Potential of Crypto with These Five Gems

Bitcoin: The Pioneer in the Crypto Space

Bitcoin, the original and highly esteemed cryptocurrency, has firmly established its reputation as digital gold. Under Trump's presidency, it stands to gain from multiple factors such as increased adoption and a focus on domestic mining. The most prominent tailwind is the prospect of clearer regulations, which holds the promise of attracting more institutional investors. This trend was already gaining momentum before the election and has continued to accelerate, as evidenced by the surge in inflows among spot Bitcoin exchange-traded funds (ETFs). In essence, for those seeking to capitalize on the current market sentiment, Bitcoin remains the safest and most proven asset in the crypto realm.

Moreover, there is speculation that the U.S. government might stockpile Bitcoin. Although highly speculative, if such a move were to occur, it would create significant buying pressure and set a precedent that could trigger a Bitcoin arms race among nations.

Ethereum: The Backbone of Decentralized Finance

Ethereum, with the second-largest market cap, has emerged as a top contender to benefit under Trump's administration. As the backbone of the decentralized finance (DeFi) economy, it could thrive with the introduction of clear regulatory guidelines. This would encourage more investment in DeFi, allowing more institutional capital to flow into the sector built on Ethereum's blockchain. Major traditional finance players like BlackRock and UBS are already leveraging Ethereum to offer tokenized assets, showcasing their confidence in its reliability and scalability. Thus, Ethereum's potential for long-term growth and adoption remains highly compelling.

Its ability to support innovative DeFi applications and provide a solid foundation for the growth of the digital finance ecosystem makes Ethereum a key player in the crypto market.

Solana: A Leader in the Crypto Bull Cycle

Solana is another major cryptocurrency that deserves close attention in this bullish market. It has demonstrated remarkable growth in various metrics, including daily active users, transaction volume, and developer activity. While a significant portion of its usage comes from meme coin traders, meaningful innovation and real utility are taking root on the network.

With its high speed and low fees, Solana is an attractive choice for real-world applications. For example, Render, a decentralized GPU rendering network, utilizes Solana's efficiency to handle complex graphics tasks in gaming, film, and design. Similarly, Helium, a decentralized wireless network, also relies on Solana. Despite trading at near an all-time high, Solana's strong growth and solid infrastructure indicate that it has ample room to maintain its momentum in the current market cycle.

Aave: A Leading DeFi Protocol

Aave is one of the leading DeFi protocols, offering a platform for users to lend and borrow digital assets in a decentralized manner. By enabling users to earn interest on their crypto holdings or borrow against them, it acts as a virtual bank on the blockchain. The project has expanded across multiple blockchains, attracting a diverse user base while remaining at the forefront of DeFi innovation.

There are ongoing discussions about enabling a fee switch on Aave, which would distribute a portion of the platform's revenue to AAVE token holders. Although not yet implemented, this proposal has been approved and could provide token holders with exposure to one of the most productive protocols in the crypto space.

Aerodrome: A Rising Star on Base

Aerodrome, one of the rising stars on Base developed by Coinbase Global, has quickly become one of the most productive and widely used protocols. Its popularity stems from its home on one of the most widely used blockchains and its innovative design that attracts and retains liquidity while rewarding users.

As a result, several key metrics such as trading volume, user activity, and revenue generation rank near the top of the market. Additionally, Aerodrome is entering a deflationary phase, which is expected to boost its price. Initially, the protocol had a high inflation rate to encourage participation and adoption, but the emission rate of its tokens is set to decline, increasing scarcity and potentially enhancing its token's value.

A recent study conducted by the U.S. Treasury’s Office of Financial Research has unveiled a remarkable connection. It shows that the surge in cryptocurrency investments has a notable impact on mortgage debt among low-income households in areas with a high exposure to digital assets such as Bitcoin and Dogecoin. This discovery raises several important questions and implications for the financial landscape.

Uncovering the Link between Cryptocurrency and Mortgage Debt

Correlation between Cryptocurrency and Mortgage Debt

Data from the study clearly indicate a significant shift. The mortgage holder rate for low-income households in high-crypto exposure zip codes has nearly quadrupled. It rose from 4.1% in January 2020 to 15.4% in January 2024. Moreover, the average balance per mortgage for these households saw a staggering surge of over 150%, increasing from $171,773 to $443,123 during the same period. This suggests that low-income households might be leveraging their cryptocurrency gains to obtain new mortgages and secure larger loans.However, this trend also brings forth concerns regarding the financial stability of these households. In January 2024, the average income for this group was reported at $40,664. As a result, the mortgage debt-to-income ratio reached 0.53, which is well above the recommended benchmark of 0.36. Such a high ratio indicates potential risks and could lead to future financial difficulties.

Similar Patterns in Auto Loans and Credit Card Debt

The study further reveals similar patterns in auto loan and credit card debt. Low-income households in high-crypto exposure areas witnessed an average auto loan balance increase of 52% between 2020 and 2024. In contrast, low-crypto areas saw only a 38% increase. Auto loan holder rates for these households also grew by 5%.For middle-income households, those in high-crypto exposure areas experienced a modest 3.1% increase in auto loan balances, while those in low-crypto areas faced an 8.5% decrease. Credit card debt among low-income households showed a significant increase, with average balances rising by approximately 46% across all crypto exposure categories. Although differences in credit card debt changes across crypto exposure categories were minimal for this income group, it still indicates a certain trend.

Delinquency Rates and Their Implications

Despite the increased leverage and higher debt levels, delinquency rates among these groups have remained relatively low. In fact, delinquency on debt dropped the most among low-income households in high-crypto exposure areas. Mortgage delinquency decreased by 4.2% in these regions, compared to a 3.8% drop in areas with low crypto exposure.Auto loan delinquency rates among low-income households in high-crypto areas decreased by 6.4%, while they increased slightly in low- and mid-crypto areas. Credit card delinquency rates for low-income households in high-crypto areas increased by 7.5%, which is lower than the 23.7% increase observed in low-crypto areas. These delinquency rate trends provide some insights into the financial behavior and stability of these households.

Geographic and Demographic Trends

The study highlights the geographic distribution of crypto exposure. High crypto exposure is typically concentrated in urban, tech-centric cities on both coasts. Exposure to cryptocurrencies has increased across the income distribution, but the most significant increases occurred among high-income earners. The percentage of high-income households reporting crypto exposures rose from 1.9% in 2020 to 6.4% in 2021.Crypto exposure also shows a decline with age, which is in line with the perception that the crypto market is more popular among younger investors. Monitoring younger demographics becomes crucial as financial distress can have a lasting impact over the life cycle.

Cryptocurrency Market Surge

Between January 2020 and January 2024, the total cryptocurrency market capitalization witnessed a remarkable surge of 737%, increasing from approximately $197 billion to $1.65 trillion. Major cryptocurrencies like Bitcoin also saw substantial gains, with its price increasing by 355% during this period.An August report disclosed that U.S. consumers are becoming more receptive to cryptocurrencies. Fewer than 1% now dismiss them as a “fad,” which is a significant change from previous years. This indicates a growing acceptance and interest in cryptocurrencies among the general population.

Policy Implications and Future Risks

The Treasury Department’s findings emphasize the need for vigilant monitoring of financial risks associated with increased leverage among low-income households. Especially if cryptocurrency markets experience a downturn, these elevated debt levels could pose future risks to financial stability.“As an important takeaway for future monitoring, we observe the increased debt balances and leverage among low-income households with crypto exposure. Rising distress in this group could lead to future financial stress, especially if exposure to these types of high-leverage, high-risk consumers is concentrated in systemically important institutions,” the study concluded.