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November 3, 2020

2020 US Elections: Cryptocurrency Markets

How will Cryptocurrencies fare in the wake of the US elections?
5 min

Trump or Biden?

As we are approaching the US elections, Joe Biden is shown to be winning in the national polls. While this is welcomed news for Democrat supporters, having seen the results of 2016, everyone understands that the US does not have a national election but an electoral college. As the presidential voting system is decided by electoral college votes, margin of victory is secondary, meaning that the result will likely be decided by the so-called ‘swing states’. Here the polls are not as advanced, and reporting agencies do not seem sensitive to the differences in polls between registered voters and likely voters. Polls of likely voters are much more important as turnout determines outcome. What we have seen in the swing state polls is that they’re in the margin of error and they focus on registered rather than likely voters. All of this is a roundabout way to say that the presidency is very much undetermined, despite what the latest polling may indicate.

Market Uncertainty

While traditional markets tend to underperform during periods of uncertainty, cryptocurrencies do not seem to be affected as much. Polarization industries and decisive politics have created one of the most contentious election periods in US history, producing an environment that seems to be driving safe-haven demand. Bitcoin has bucked recent trends of mirroring stock market movements and uncertainty factors may bolster Bitcoin’s recent surge in price as volatility in traditional markets gives way to opportunity in digital assets.  

Both candidates have remained fairly diplomatic in regard to their views on Cryptocurrency and it certainly hasn’t made an appearance in either of their election campaigns. While Cryptocurrencies won’t be at the forefront of the future President’s domestic policy, there is building momentum in regards to central bank digital currencies (CBDC) as well as an inflow of retail and institutional investment into Bitcoin. These factors are making Cryptocurrency increasingly relevant and as widespread adoption continues, it is safe to assume that the future of Cryptocurrencies will be on the agenda of the future administration.

Economic Stimulus  

Irrespective of the outcome on the 3rd of November, Bitcoin and Cryptocurrencies seem well placed in the immediate future. Whoever inherits the post-election economy will be facing the financial repercussions of the corona pandemic which will likely mean an enormous economic stimulus from either party. This fact strengthens one of the largest appeals of Bitcoin as a hedge against inflation. The US is on a long and expensive path to recovery. In September, unemployment rates moved to 12.6 million and as the virus continues to linger, new lockdown measures will have to be put in place that will affect consumer confidence and hurt the country’s output. The upshot is that fiscal stimulus, to the tune of trillions, is likely to be issued from any administration, making Cryptocurrency an attractive investment for those weary of further devaluation of USD.  

While the future of cryptocurrency probably won’t be handled by Biden or Trump, the individuals they appoint will exercise significant influence over the future of digital assets. Federal agency chairs, such as the SEC, CFTC, and OCC, will have to make decisions in regard to things like CBDC’s and legalities surrounding various tokens. While it is premature to know whether the Democrats or Republicans will be most amicable to the future of Cryptocurrencies, it is unlikely that either party can stop the momentum of Bitcoin or the consensus amongst global central banks that digital currencies are the future of finance.  

As we are in the final days of the lead up to the US Presidential election, we can expect to see increased volatility in mainstream markets as results start coming in. Political unpredictability will most likely drive demand for safe-haven assets, with the potential of further spiking interest in Bitcoin and other Cryptocurrencies. There is also the chance that market uncertainty will be prolonged in the event of a contested result - an outcome that may be caused by the large volume of postal and absentee votes against a background of a resurgence in COVID-19 infections. What is certain is that the future administration will have to ramp up government spending to combat the corona-induced recession; the result of which may lead to investment into Bitcoin and other Cryptocurrencies as a hedge against currency devaluation. For this reason, the crypto market looks promising over the long term - whether we see a new face in the White House or Trump wins another 4 years.