The year 2024 belongs to Bitcoin, and investor interest in the largest of the cryptocurrencies is again on the rise, as the price rises. In the spring, Bitcoin 'reached' new all-time highs, reaching nearly $74,000. Now, after considerable declines and uncertainty over the summer, it has again approached record valuations 'on the eve' of the US presidential election, the result of which will be known on the night of November 5-6.
The sympathy that the cryptocurrency market has for Donald Trump, who is leading in the polls in the presidential race, is fueling this year's bull market. It's not surprising, since Trump himself intends to create his own 'family empire' blockchain, World Liberty Financial. As a result, Bitcoin appears to be at the mercy of the US election result. Will cryptocurrencies face a real 'revolution' if Donald Trump wins? Or has the market over-optimized around the 'Trump Trade'?
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Open real account TRY DEMO Download mobile app Download mobile appBitcoin is very sensitive to the change in dynamics valued by the probability of Donald Trump winning the US presidential election. As a result of the increase in Harris' chances, since the second half of last week the price has fallen from around $73,500 to $68,000 today. Source: XTB Research, Bloomberg Finance L.P
ETF funds are not enough?
The first half of the year for Bitcoin was marked by the debut and speculation around the impact of ETFs and fourth halving. Exchange-traded funds have been steadily accumulating BTC and have sold off relatively few reserves, given Bitcoin's nearly 30% correction from its highs, in August The second half passed with the rhythm of the US presidential election. The market likes to simplify some things, and in this case sees Kamala Harris as a supporter of traditional finance, whose Democratic administration will not be particularly interested in supporting Bitcoin with additional programs or concessions for cryptocurrency companies.
However, this pessimism seems to be a considerable oversimplification. After all, it was under the Democrats that ETFs created by giants such as BlackRock and Fidelity were allowed to be traded. Ultimately, then, it is by no means obvious that Harris and the Democrats will be particularly opposed to Bitcoin. Nevertheless, the market sees the Republicans and Trump as the group that can dissolve the gift bag for Bitcoin and bring a whole new breath of fresh air to the industry, 'consolidating it' under the American flag.
The launch of ETFs in the U.S., in January of this year, resulted in net inflows of more than $23.6 billion into Bitcoin. That's about 15% more than the net inflows into the 'flagship' SPDR ETF on the S&P 500. Source: XTB Research, Bloomberg Finance L.P
The 'American dream' about Bitcoin
It's not surprising that a situation in which a (possibly) future U.S. president will be linked to the cryptocurrency market through the lens of self-interest pleases Bitcoin supporters. After all, the debut of ETFs is now just a history, and investors always have an appetite for more. As it turns out, there's plenty to fight for, as Bitcoin's 'aggressive' backing program involves the United States itself buying it... And there's no indication that Trump would have anything against the idea.
Admittedly, interest in the WLFI token, associated with World Liberty Financial and Trump's family, turned out to be lower (the project lowered its target funding by 90% from $300 million planned at the beginning to $30 million now), but the very fact that Trump has clearly identified blockchain as an alternative to traditional banking and institutions that have begun to abuse their power puts the BTC market into the party mood (Satoshi's vision rewind).
According to Axios, the world has already used approx. 44 billion dollars to secure decentralized loans (De-Fi). Against the background of the banking sector, this is still a trace amount. Trump is looking for his business opportunity here, and also expressed support for Bitcoin during a fiery speech in June, when he promised that during his reign the US would not sell any of the approximately 210,000 BTC it holds (about 1% of all BTC). Trump also criticized the U.S. for divesting some of its BTC reserves.
The first, serious steps to support Bitcoin have already been made. Republican, Cynthia Lummis presented a bill suggesting the creation of a national Bitcoin strategic reserve, the “Boosting Innovation, Technology and Competitiveness through Optimized Investment Nationwide (BITCOIN) Act.” Having a BTC reserve would stabilize the exponentially growing U.S. deficit, which has already reached nearly $36 trillion.
Under the new law, the U.S. would aim to accumulate 5% of the total targeted Bitcoin supply, or about 1 million BTC. The tools that would make this possible are already available in the form of ETFs. Purchases would take place over 5 years, with a target of 200,000 BTCs accumulated each year. If we add to this puzzle the aspect of halving (decreasing supply every 4 years) and market purchases through ETFs, it's not hard to guess that the market is hoping Trump will accelerate the long term supply shock.
After a moment of weakness, following the so-called halving (limiting new BTC supply and miners' rewards by half every four years or so), Bitcoin is again showing some resemblance to historical halving highs, beginning a cyclical rise early in the fourth quarter of the year. Source: XTB Research, Bloomberg Finance L.P
Summary
The market is probably not wrong in believing that Trump's election could help 'solve the bag of new gifts' for the cryptocurrency industry. At this point, the benefits beyond solidifying the position of Bitcoin itself are difficult to quantify. Let's remember that in 2016 Trump won the election, even though polls gave him a barely 15% chance against Hillary Clinton. So this time, the markets may be wrong to underestimate Harris.
At least in the short term, what happens to Bitcoin will depend on the outcome of the election. But will a Democratic win be seen as a big blow to the industry? Not necessarily. After all, it was during the administration of Democrat Joe Biden that Bitcoin reached new historic highs and rose from around $4,000 in March 2020 to nearly $70,000 today.
What's more, the 'Trump Trade' is all about strengthening the dollar, consolidating inflation and increasing yields (protectionism). Historically, the macro backdrop has not been particularly favorable for Bitcoin. The arrival of 10-year yields at the magic 5% barrier may suggest significant changes in the positioning of large speculators and institutions (so-called Niederhoffer Rule). Let's also remember that Trump will not rule 'indivisibly'; in Congress, Republicans will continue to compete with Democrats.
For the moment, we know one thing. Bitcoin has taken a liking to Donald Trump, and Republicans, with his help, can create a legal framework that will help not only Bitcoin, but also the adoption of blockchain technology and other smaller cryptocurrencies. If Harris wins the election, a temporary correction may be inevitable.
Bitcoin chart (daily interval)
Looking at the daily chart of the BTC price, we see that the price has left the medium-term downtrend price channel (March - October) after many failed attempts (red circles on the tops of the candles). Currently, it is again testing the upper limit of the mentioned price-channel, at $68,000 as support. The price has defended the 38.2 Fibonacci retracement level of the January 2024 upward wave near $50k three times, as well as EMA-200 (red line).
- Since the local lows of August, Bitcoin has risen nearly 20%, and its capitalization again reaches $1.36 trillion, with the total capitalization of the cryptocurrency market at $2.2 trillion. A breakout above the price channel is a potential confirmation of a bullish flag formation, and if another upward impulse is triggered, a test of the area around $78k-$80k is possible.
- In the scenario of a win for Kamala Harris, a downward impulse may lead to a test of the $64k where there is significant support between the STHRP on-chain level and the 23.6 Fibo retracement at $62k.
- Denominated in the euro currency, Bitcoin reached a new ATH in October, above €68k. Bitcoin has risen more than 55% since January 1, 2024, while the Nasdaq 100, which is hitting historic peaks, has gained 21% and gold 27%.
Source: xStation5
Eryk Szmyd Financial Markets Analyst at XTB
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