With 2020 Presidential Elections taking place this week, many investors are wondering what this means for Bitcoin price. In this article we compare an economic environment under Democrats and Republicans, and address how this can directly relate to Bitcoins sentiment. Would Biden or Trump create the best long-term scenario for BTC?
The Most Important Fundamental
Regardless of the critics, data strongly shows that the US Dollar and Bitcoins price are highly non-correlated. This means they tend to move in opposite directions. If the Dollar is experiencing a sharp sell-off, chances are Bitcoins price is experiencing upward momentum. This is why the “store of value” narrative behind Bitcoin is getting more publicity.
These inverse relations have gotten stronger since Bitcoins inception. As the tech and infrastructure experience maturation, this non-correlation is getting stronger which is a good sign from a diversification standpoint. In the yearly chart above, we can see how large price moves in Bitcoin have come at a time when the Dollar Index ( DXY ) is experiencing volatility.
The Dollars Price Action During Elections
What we have learned over time is that the Dollar has historically gone up after the election regardless of the party taking office. According to a report by Bloomberg, the dollar has seen upward momentum 100 trading days following 9 out of the last 10 elections ( 1980 – 2016 ). Despite the dollar displaying this type of behavior, it has seen a stronger surge with Democrats taking office. On average the Dollar grew ~ 4% on Democrats taking office vs ~ 2% for Republicans in the first 100 trading days after the election.
With this being said, many argue that a Joe Biden ticket could help a struggling dollar. If this were the case, Bitcoin could experience selling pressure based on historical price action. Many Bitcoin investors argue that the digital asset could retest all-time highs by year end, but we believe it will be really important focus on the fundamentals post election. Despite the Dollar potentially seeing more short-term upside from Biden, we believe that Biden’s policies long-term will be a Dollar decelerator.
Trump Vs Biden & The Dollar
Prior to COVID19, the US Dollar surged to 3-year highs under the Trump administration. Many believe this was fueled by the corporate tax cut and trade barriers with China. Since March highs, the Dollar has fallen over ~ 9%, which is directly related to the global pandemic. Historically low GDP, the Feds trillions in stimulus, and more uncertainty around a “2nd wave” of COVID19 have all contributed to the dollars carnage. On the contrary, investors who have diversified in Bitcoin have taken advantage of a struggling dollar. Bitcoin is one of the best performing assets this year, seeing +88.60% YTD.
Despite many concerns around the global pandemic, it is believed that the US Dollar will perform better under a Trump reelection. Biden’s plans around higher taxation, soothing tensions with China, and positive Wall Street momentum could all put significant pressure on the Dollar. A big fiscal stimulus by the Democratic party could create bullish momentum in the Dollar, but this sentiment is expected to fade based on history and the type of policies they have outlined.
With this being said, one could argue that Bitcoin is in a better position to rally long-term under a Biden administration. With a soft and declining Dollar under Biden, Bitcoins price has historically capitalized in this environment. Under a Trump reelection, bitcoin trading is expected to see elevated levels of volatility.
Bitcoins Growth This Year
As discussed above, the Trump administration was touting a very strong dollar for a while. During this time, Bitcoins price was having a difficult time seeing any bullish momentum. When the Dollar was trading at yearly highs, Bitcoins price was trading at yearly lows ( ~ $5,000 levels ). As outlined in the chart below, most of Bitcoins growth this year followed the pandemic. Without this event that caused great harm to the Dollar, BTC would most likely be trading at a much lower level right now. The reason we say this is because the Dollar essentially had little reason to fade prior to COVID19 and government intervention. Trumps newly enacted policies were a driver for Dollar strength.
This just goes to show the relationship between the Dollar and BTC. If Trump does win a second term, there is a good chance that the Dollar rebounds much stronger than a Biden ticket. In doing so, we believe it could cause some issues for BTC in the foreseeable future. On the flip side, if Biden wins the presidency, BTC could very well test all-time highs quicker than many people think.
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