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The Outlook for Bitcoin Following the US Election Result

November 3, 2020
Earlier this week, a Forbes article entitled ‘Bitcoin Is Braced For A U.S. Election Earthquake This Week’, argued that there has been ‘a tidal wave of bullish sentiment among Bitcoin investors that hasn’t been felt since Bitcoin’s historic 2017 bull run — and seems unshakeable no matter the outcome this week.’

The Outlook for Bitcoin Following the US Election Result

Earlier this week, a Forbes article entitled ‘Bitcoin Is Braced For A U.S. Election Earthquake This Week’[1], argued that there has been ‘a tidal wave of bullish sentiment among Bitcoin investors that hasn’t been felt since Bitcoin’s historic 2017 bull run — and seems unshakeable no matter the outcome this week.’ At EQUOS, we wanted to delve further into the weeds and ascertain the outlook of some of the industry’s top minds on the impact of the U.S. presidential election on BTC price momentum in the short-, medium- and long-term. 

The U.S. presidential election is finally here. Following a turbulent week in the markets which saw Bitcoin soar to an almost three year high of $14,093[2], and then start to track sideways into the eve of the election, many investors are holding their breath in anticipation of what a result in either direction might mean for the digital asset class.

While the battle between Bitcoin bulls and bears continues, Matt Blom, Global Head of Sales Trading at Diginex, offers a reassuring perspective on the medium-term outlook for price action in the digital asset space. “A simplistic view is that the winning candidate won’t move the dial too far either way.” Adding credence to Matt’s argument is the fact that Bitcoin prices barely reacted when Trump defeated Hillary Clinton in 2016.

Matt contends that regardless of the election outcome, the adverse economic reality that Covid-19 has enforced on the global economy is still some way away from being overcome and will dictate monetary policy for the foreseeable future. “Whoever gets the nod is going to have to sustain downward pressure on interest rates and keep markets happy. As long as interest rates remain depressed and the monetary system continues to be flooded with an ocean of QE in the form of historic stimulus support, the narrative remains the same for BTC — and it’s a positive story. For crypto-native investors, excessive fiat printing further validates the long-term value proposition of BTC, and for institutional money, it offers a non-correlated and non-deflationary alternative to a lackluster equities backdrop.” 

Postal Votes & Price Action

Interestingly, Matt conjectures that the media and most analysts may be overlooking the single most significant consideration that this election might hold for BTC. He argues that the mounting rhetoric regarding the integrity and legitimacy of postal votes may move deliberations about blockchain-based voting up a gear, particularly if markets are hit by the tumult of a contested election or one candidate refuses to concede a victory won via postal ballots. “A disputed outcome is the primary concern of most investors[3]. What fund managers and equity investors want is a clear-cut victory. If the count is contested and markets descend into chaos, pundits will likely start to ask why we aren’t utilizing technology that can bypass these issues of legitimacy and counting entirely. This will elevate blockchain and Bitcoin into the public discussion. And an accelerated transition towards a blockchain-based voting system would enhance awareness and market sentiment around the digital asset class as a whole.”

A Mass Sell-Off Event

The ominous prospect of a more contentious repeat of the drawn-out fight that followed the 2000 presidential election certainly has investors on edge, particularly in light of media reports outlining suspected preparations on both sides of the red-blue binary to carry their campaigns into the courts. If this election is close, it will likely trigger a mass sell-off event across asset classes. What is interesting is the fact that while stocks and Bitcoin have correlated up until very recently, Bitcoin has broken away from all correlations in the past week, and has actually tracked in tandem with the US dollar for the first time since the onset of Covid-era economics. Bitcoin has decoupled from gold and equities over the last six weeks as very nearly eclipsed the asset’s highest-ever monthly close (December 2017) last week. The asset’s outperformance is not going unnoticed by fund managers[4].

Justin d’Anethan, Sales Manager at Diginex elaborates: ““Key indicators point to the recent rally being a lot more institutional than before. Looking at Google Trends, for example, searches for Bitcoin have been pretty flat. This could be extrapolated to show that retail investors aren’t searching for bitcoin as was the case with the previous rallies. Thus, I would be inclined to believe that the rally of last week was more institutionally led. Investment managers wouldn’t typically head to Google to search what bitcoin is or to look for investment advice. This is a very positive trend and follows on from a succession of recent high-profile digital-asset investment debuts such as PayPal, MicroStrategy, Square, DBS and Tudor Investments.”

BTC — A Safe Haven No More?

“While Bitcoin often trends as a safe-haven asset, the initial reaction to a contested result may well include a sell-off, but following this Bitcoin will likely emerge to rally in the face of broader market stagnation,” argues Matt. “Taking a step back to contextualize things — we are in the middle of a pandemic beyond the scale of any other event in living memory. We have massive stimulus packages being rolled out in succession globally, fractious geopolitical tensions on the rise, and deficits skyrocketing out of control. Topping all of this off is the possibility of an absolutely chaotic election in the world’s largest financial market. This is Bitcoin’s time. If the election is chaotic after the initial shock Bitcoin will carry on outperforming.”

Justin agrees with this analysis, adding “Stock markets are not very good at pricing political risk, and uncertainty can, and may well, override inevitable outcomes, and assume a decisive role in market activity, as was the case in 2000. My gut feeling is that Republicans are going to hit the polls en masse. Trump will declare himself the winner at the start and attempt to discredit any tallies favoring Biden. As postal votes continue to come in, the scales will likely tip. A long-contestation scenario could increase ambiguity around US-China trade tensions and exacerbate market volatility. That being said, political uncertainty tends to be good for Bitcoin.”

[1] Forbes — Bitcoin Is Braced For A U.S. Election Earthquake This Week Nov 2, 2020

[2] Coindesk — First Mover: 11 Election Talking Points on Bitcoin as TRUMP Futures Point to Loss Nov 3, 2020

[3] MarketWatch — What the election means for the markets as investors pine for a ‘clear victory’ Nov. 3, 2020

[4] CityAm Bitcoin’s closing price for October was its second highest ever monthly close Nov 3, 2020

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