As Bitcoin reels from one of its steepest corrections in years, Nobel Prize–winning economist Paul Krugman has offered a striking explanation:
Bitcoin is crashing because Donald Trump is losing political power.

In a new column, Krugman argues that crypto’s meltdown is not purely a financial event—but a political one, directly connected to what he calls “the unraveling of the Trump trade.”

According to Krugman, Bitcoin’s biggest rallies have aligned closely with:

• Rising political populism
• Anti-regulatory sentiment
• MAGA-aligned “economic chaos plays”
• Expectations that Trump would weaken financial oversight
• A belief that traditional institutions were collapsing

With Trump now facing slipping influence, legal setbacks, and weakening polling advantage, Krugman says the air is coming out of one of the most politically charged trades in modern markets.

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Krugman’s Core Argument: Bitcoin Thrives on Political Disorder

Krugman frames Bitcoin not as a technological revolution, but as a political asset—one that rises when people expect chaos and decline when stability returns.

He identifies three political factors that historically fuel BTC pumps:

Anti-establishment fervor

Crypto’s strongest cultural base overlaps with anti-government voters, libertarians, and populists.

Deregulation expectations

Trump’s promises of hands-off crypto regulation created optimism for:

• Spot ETFs
• Looser SEC oversight
• Pro-miner policies
• Treasury friendliness
• Crypto-dollarization options

When Trump’s power surged, BTC did too.

Institutional distrust & “end of empire” narratives

Bitcoin rallies tend to accelerate when mainstream political institutions look weak.

Krugman argues these pillars are now weakening—and so is Bitcoin.

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BTC’s Meltdown, Through Krugman’s Lens

Bitcoin has plunged below key support after:

• Over $19B in liquidations
• Spot ETF outflows
• Miners capitulating
• Regulatory uncertainty returning
• Risk markets unwinding across tech

But Krugman says these are symptoms, not the cause.

“The Trump trade is reversing. And Bitcoin was one of its most visible expressions.”
—Paul Krugman

In his view, BTC’s decline shows markets no longer believe Trump can deliver the policy environment crypto speculators were counting on.

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Election Dynamics: The Most Politicized BTC Cycle Ever

For the first time in Bitcoin’s history, analysts agree crypto markets are deeply tied to U.S. politics—more than interest rates, ETF flows, or even halving cycles.

This cycle has seen:

• Trump campaigning as the “crypto president”
• Biden softening stance on blockchain and AI
• Congress pushing bipartisan stablecoin bills
• ETH, XRP, and SOL ETFs emerging as policy tools

In this political environment, narratives can move billions.

Krugman is essentially saying:
The Bitcoin rally was a Trump political rally. And both are losing momentum.

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Is Krugman Right? Analysts Say… Not Entirely

Crypto analysts push back on Krugman’s thesis:

Bitcoin is global, not a U.S. political asset

Only a fraction of BTC’s liquidity is U.S.-based.

Trump’s popularity doesn’t strictly correlate with BTC price

Past cycles show BTC’s macro sensitivity is strongest to:

• Liquidity
• Dollar strength
• Interest rates
• ETF flows
• Miner economics

BTC rallies during both Republican and Democratic cycles

Bitcoin hit ATHs under:

• Obama
• Trump
• Biden

Still, Krugman’s point has traction: Bitcoin is becoming a political weapon, and investor flows now react to political signals more than ever.

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What This Means for Markets

Krugman’s thesis raises big questions for the months ahead:

If Trump continues to weaken, does BTC fall further?

If Trump stages a comeback, could crypto rebound stronger?

Is Bitcoin now a political trade rather than a macro trade?

Will 2025 reshape crypto regulation?

One thing is clear:
Crypto is no longer apolitical. It’s now embedded in the U.S. power struggle.

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Conclusion: Bitcoin Is Entering a New Phase—Political Volatility

Whether or not Krugman is right, he highlights a real trend:

• Bitcoin is now tied to federal policy
• Crypto regulation is an election issue
• ETFs have moved BTC into the Wall Street mainstream
• Political narratives directly influence market flows

If Bitcoin once lived outside the political system, it no longer does.

And as Krugman warns, the political foundation supporting the last rally may be shifting beneath it.