“That’s Our Two Satoshis” - The Crypto Reagan Effect

Jeff Dorman, CFA
Feb 18, 2025

Thats Our 2 Satoshis Logo

Screenshot 2025-02-18 at 11.08.07 AM
Source: TradingView, CNBC, Bloomberg, Messari
 
Written by David Nage, Portfolio Manager at Arca
 
In the midst of crypto's current market downturn, a fascinating historical parallel has emerged that might offer both context and hope for investors. As market participants grapple with the seeming contradiction between positive policy developments and declining prices, the echoes of 1980-81 grow increasingly difficult to ignore.
 
The Reagan Parallel: A Tale of Two Transitions
When Ronald Reagan took office in 1981, markets faced a paradox that feels strikingly familiar to crypto investors today. Despite having a pro-business, pro-market president taking the reins with ambitious plans for reform, the stock market entered what would later be known as the "Reagan recession." Sound familiar?
 
Source: Statmuse
 
Just as Trump's administration appointed David Sacks as crypto czar and signaled strong support for the industry, Reagan's team arrived with bold promises of economic transformation. Yet, in both cases, markets initially moved in the opposite direction of sentiment. The reason? Markets need time to digest the previous cycle's excesses before new policies can take effect.
 
A Dance of Numbers: Comparing the Declines
Looking at the data, these market movements show similarity, albeit with crypto's characteristic amplification:
 
The First Act: Initial Optimism
 
  • Reagan's Dow: From election day to the first few months in 1981, the market rallied 2-3%
  • Crypto Markets: Crypto markets Showed similar initial sentiment post-election as they expressed their first vote of confidence in the new administration's direction.
The Second Act: Reality Sets In
  • Reagan 1981: A bumpy road leading to a ~9% decline for the year
  • Crypto Market Cap from Dec 2024 to today: -19.7%
The magnitude of crypto's moves isn't surprising, given the market's 24/7 nature, higher retail participation, and embedded leverage. Think of it as watching the same play but with the volume turned up.
 
Sources: Consumer Sentiment Index: University of Michigan Consumer Sentiment Survey, The Media and the Reagan Presidency, Columbia University Press, Conference Board Consumer Confidence Survey (1981),Alternative.me Crypto Fear & Greed Index, LunarCrush API data,  CryptoCompare Media Sentiment Index
 
Perhaps the most striking parallel lies in market sentiment. Both periods showcase a similar psychological pattern:
 
Media Narrative
The Reagan era saw negative-to-positive coverage running at a 2:1 ratio. Today's crypto coverage shows remarkably similar skepticism, despite positive policy developments. 
 
Institutional Behavior
Then, as now, large players adopted a "wait-and-see" approach. In 1981, institutions waited for concrete policy implementation. Today, crypto institutions await regulatory clarity. Different decade, same institutional caution.
 
Why This Time Might Be Different (In a Good Way)
While the patterns rhyme, crypto enjoys several advantages over the 1981 scenario:
 
  • Macro Environment
    • 1981: 13.5% inflation, 21.5% interest rates
    • 2025: Moderate inflation, manageable rates.  The headwinds are significantly lighter this time around.
  • Implementation Speed
    • Reagan's reforms: Months to years
    • Crypto regulation: Potentially weeks to months. The digital age moves faster.
  • Scope
    • 1981: Entire economy needed restructuring
    • 2025: Focused sector-specific changes. Smaller scope often means faster implementation.
The Road to Recovery: What History Suggests
The 1981 experience provides a potential roadmap for crypto's recovery. The Reagan market began finding its footing after 6-7 months, when:
 
  • Policy implementation began materializing
    • In August 1981, President Reagan signed the Economic Recovery Tax Act of 1981, which brought reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings.
  • Market structure adjusted to new realities
  • Institutional investors' sentiment improved, highlighted by a record-setting IPO market
For crypto, this suggests we might see stabilization by Q3-Q4 2025. The catalysts look remarkably similar:
 
  • SEC task force providing regulatory clarity
  • SAB 122 implementation
  • Institutional framework adoption
Looking Ahead: The Light at the End of the Tunnel
While crypto's decline has been steeper than its 1981 counterpart, this might actually be encouraging. Crypto markets are known for their accelerated timeframes – they fall harder but often recover faster. If the Reagan parallel holds, we're not just seeing a market bottom; we're watching the compression spring coil for the next advance.
 
The key lesson from 1981? Markets can turn dramatically once policy implementation begins showing concrete results, even while sentiment remains negative. For crypto investors today, this suggests that the current pain might be the darkness before dawn.
 
As Mark Twain supposedly said, "History doesn't repeat itself, but it often rhymes." In crypto's case, we might be hearing the echoes of 1981's turnaround story, just played at a faster tempo.
And for those who don’t recall, the stock market did quite well from 1981 to 2001.
 
Source: TradingView
 
 

And That’s Our Two Satoshis!
Thanks for reading everyone! Questions or comments, just let us know.

 
The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Katie Talati - Director of Research
Sasha Fleyshman - Portfolio Manager
David Nage - Portfolio Manager
Wes Hansen - Director of Trading and Operations
Michal Benedykcinski - Senior Vice President, Research
Alex Woodard - Associate, Research
Christopher Macpherson - Research Analyst
Andrew Masotti - Associate, Trading and Operations
Joey Reinberg, Associate, Trading and Operations
 
 
To learn more or talk to us about investing in digital assets and cryptocurrency
call us now at (424) 289-8068.

Subscribe For the Latest Blockchain News & Analysis

 

 

Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, legal advice, tax advice, a research report, or a recommendation. Any decision to invest or take any other action with respect to any investments discussed in this commentary may involve risks not discussed, and therefore, such decisions should not be based solely on the information contained in this document. Please consult your own financial/legal/tax professional.

Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed are those of the author, and are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca disclaims any obligation to update or revise any statements or views expressed herein. Past performance is not a guarantee of future results and there can be no assurance that any future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which is believed to be accurate, but has not been independently verified. Arca and/or certain of its affiliates and/or clients may now, or in the future, hold a financial interest in investments that are the same as or substantially similar to the investments discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities, or a solicitation to provide investment advisory services.