US Presidential Election vs. Bitcoin: Is It Still a Safe Haven?

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The period preceding US presidential elections are primarily characterized by high uncertainty, with wild swings in the financial markets in anticipation of political changes. In the face of this turbulence, investors are either seeking safe havens, or placing proxy bets on the outcome of the elections. For safe haven assets, the favorites are gold and government bonds, but when it comes to assessing which assets may come out ahead, cryptocurrencies, particularly Bitcoin, have recently come into the limelight. As the 2024 US presidential election approaches, the stakes are getting higher in politics, amid the chances of Donald Trump being re-elected. Financial markets are reacting to uncertainty, shifting with each new political headline. 

In this article, FBS financial market analysts explore Bitcoin’s trajectory during the previous presidential elections in the US, look at possible policy changes after 2024, and answer whether Bitcoin can protect or put portfolios in danger during uncertainty.

Bitcoin’s Historical Performance during US Elections

Typical for volatile assets, the dynamics of the price of Bitcoin has changed with every US election in the past. Focusing on the elections in 2012, 2016, and 2020, investors can examine the Bitcoin price movements and potentially draw parallels with what will happen this round.

2012 Election Analysis: Barack Obama vs. Mitt Romney

In 2012, Bitcoin was largely unknown to the general public. Its market capitalization was just a little more than $100 million. During the US presidential election in which Barack Obama was re-elected, the price of Bitcoin bounced between 10 and 12 dollars. Back then, the broader financial markets were more engrossed with traditional assets, and the correlation with such events was limited. 

At this still-early stage, the primary users of Bitcoin were beginners and enthusiasts in niche online communities. It can be inferred that the market was not very liquid and had poor institutional participation; the US election did very little to affect the price of Bitcoin. 

Over the 2012 election year, Bitcoin rose from roughly $5 in January to over $13 in December. This trend was due more to the growing fascination with Bitcoin as a new digital asset rather than any response to the US election result. Although 2012 marked the beginning of Bitcoin’s road to greater recognition, this was just the start of what it would become in the financial world.

2016 Election Analysis: Donald Trump vs. Hillary Clinton

The events surrounding the 2016 US election became a  turning point in Bitcoin’s history. 

In November 2016, the Bitcoin exchange rate was trading within the $700-800 range, while the market capitalization had surpassed the $12 billion level. The significant uncertainty brought by Donald Trump into global financial markets following his election created a growing interest in alternative assets such as Bitcoin.

During the election period, the price of Bitcoin was fluctuating within a relatively stable range. However several weeks after the election, the price started to increase sharply. At the end of 2016, due to several factors, including concerns over the economic policy of the new US administration and growing interest from institutional investors, Bitcoin price rose to almost $1,000. In the post-election period, bitcoin was increasingly recognized as a hedge against geopolitical risk and economic uncertainty. This resulted in the demand for the asset to sharply rise.

The rising price of Bitcoin was further driven by increasing awareness and the introduction of blockchain pilots by major financial institutions. Going into the election, Bitcoin’s relative stability, followed by the significant post-election increase, evidenced Bitcoin’s growing position as a speculative asset benefiting from market uncertainty.

2020 Election Analysis: Joe Biden vs. Donald Trump

The US elections in 2020 occurred under entirely different conditions: the world struggled with COVID-19 and unparalleled economic uncertainty. During these elections, Bitcoin's price was resting at around $13,000, with a market capitalization of over $240 billion. The election itself was surrounded in uncertainty over the eventual outcome, the visible effect of which was felt on financial markets.

During election week, the price of Bitcoin became quite volatile, ranging between $13,000 and $15,000. However, the most critical movement occurred after the election, when Bitcoin started a historic rally of almost $20,000 before the end of December 2020. In parallel, unprecedented fiscal stimulus measures powered this rally, raising inflation fears and increasing institutional adoption of Bitcoin as a savings vehicle.

The 2020 elections, at least, solidified Bitcoin’s reputation as an asset class that benefited during periods of economic turmoil. Notably different from previous elections, where its reaction was relatively soft, the 2020 elections asserted Bitcoin as speculative and a hedge against risks from traditional finance. This was further evidenced in the surge in institutional interest when companies like MicroStrategy and Square added Bitcoin to their respective balance sheets as a sign of growing acceptance of Bitcoin as an asset class in its own right.

Recap of the 2012, 2016, 2020 Bitcoin Trends

Comparing the dynamics of Bitcoin through these three cycles of elections, a few patterns would come close. This was expected in the 2012 elections, as Bitcoin was still nascent and did not contribute to the market. By 2016, Bitcoin started to show some reactions to world events, especially after the election, when investors sought refuge in its alternative markets due to economic uncertainty. Still, the 2020 elections were very different: Bitcoin not only moved in response to the elections themselves but also had a sharp post-election rally, one driven by the macroeconomic conditions.

2024: Bitcoin as a Safe Haven for Investors?

Increasing attention is being devoted to Bitcoin’s potential as a safe-haven asset, especially in light of the 2024 US election. New statistics and recent market behavior give us yet another look at investor sentiment about Bitcoin during political turmoil.

While bitcoin is called "digital gold," its behavior as a safe haven remains highly controversial. The latest data for 2024 underlines this debate: the correlation of Bitcoin with the S&P 500 index has fallen to 0.02 in 2024, signaling that Bitcoin might not be correlated to traditional risk assets. Its volatility remains high, however: the 30-day rolling volatility for bitcoin averaged 4.5% in the second quarter of 2024, against 1.2% for gold. Yet its market capitalization has surged, reaching $600 billion by August 2024, driven mainly by institutional interest.

Indeed, it was only in the year 2024 that investor attitudes towards Bitcoin began to change – when the use of Bitcoin as a hedge for inflation and currency devaluation increased. That is also reflected in trading volumes, which hit $35 billion a day in July 2024, 25% more than in the same month a year earlier, as investors increasingly reach for bitcoin in anticipation of market volatility. According to a recent report by Security.org, 40% of American adults now own cryptocurrency, up significantly from 30% in 2023. This means about 93 million Americans are currently involved in cryptocurrency.

Geopolitical events of 2024 have furnished new examples of the role of Bitcoin. For instance, in the light of the recent tensions between the United States and China, which began to rise in May 2024, bitcoin continued its rise above traditional safe-haven assets, including gold, by 18% over a two-week period, as opposed to the meager rise of 3% by the latter. More recently, following the financial crisis that hit Argentina at the beginning of 2024, there was an increase in the use of Bitcoin in Argentina by 150% to protect savings from devaluation and hyperinflation of the currency.

With the 2024 US elections coming into focus, investors are increasingly focused on including Bitcoin in their strategy. According to a recent report by JPMorgan, 40% of institutional investors now use Bitcoin in their hedging strategies related to the elections, while in 2020, that percentage was 30%. The trend is driven by concerns over potential changes in legislation, changes in economic policy, and continued inflationary pressures. It also shows that open interest in bitcoin futures has surged by 20% on the CME exchange this August 2024, depicting how traders are preparing for possible changes to come in the market during elections.

Policy Impact on Bitcoin

The US election in 2024 may have the most significant impact for Bitcoin in terms of regulatory policy, economic decisions, and international implications. Recent data gives some insight into how such changes may unfold and how they might affect the cryptocurrency market.

Regulatory Policy

As of mid-2024, the regulatory environment for cryptocurrencies within the US still needs to be clarified. The cryptocurrency industry has significantly increased lobbying at the federal level over the past several years. This year alone, it spent $5.6 million lobbying during the first quarter of 2024, more than it spent for an entire year until 2021. This jump hints that the industry is concerned about potential policy shifts following the election. 

Depending on which administration comes into power, all possibilities are on the table, from establishing an overarching regulatory framework for digital assets, to introducing more stringent controls to try to inhibit criminal behavior. For example, the draft Structure of the Digital Asset Market and Investor Protection Act is current in revision phase may bring more intensive reporting from exchanges, possibly categorizing some cryptocurrencies as securities. 

These restrictions could lead to a contraction in trade volume, as compliance costs will rise along with legal requirements. According to several estimates, trade volume might be reduced by 15-20% in the first quarter after implementation.

Economic Policy

In this respect, the future of Bitcoin may also depend on the new administration’s economic policies. More importantly, it is the policy that the Federal Reserve will adopt around interest rates, especially against inflation. As of September 2024, the US inflation rate is at 2.5%.

If the election favors an administration looking to tighten monetary policy, we could see the continuation of current high interest rates, which, at least historically, makes non-income-producing assets like bitcoin less attractive. However, such a scenario is unlikely because the Federal Reserve is expected to start cutting interest rates soon, as inflation has steadily declined and the Fed is shifting towards a more accommodative stance. Lower interest rates could reduce the opportunity cost of holding non-yielding assets like Bitcoin, making them more attractive to investors.

What If Kamala Harris and the Democrats Win?

Kamala Harris has been more balanced in her approach to cryptocurrencies. She strives to balance providing a regulatory framework, while allowing innovation to continue. Her administration is expected to ensure consumer safety while working to foster innovation. 

However the Democratic Party remains divided on crypto, with prominent figures such as Senator Elizabeth Warren demanding strict controls on national security and financial crimes. Harris’s approach might now be to sway an increasing number of voters in favor of digital assets. After all, nearly 40% of the eligible voters in 2024 are members of Generation Z and millennials, with over 50% likely to support cryptocurrency-friendly policies. 

As part of her balanced approach, Harris will likely advocate for promulgating rules that will compel exchanges to adopt more sophisticated AML and KYC policies and procedures, raising the compliance burden for US-based exchanges by up to 20-30%.

What If Donald Trump and the Republicans Win?

Donald Trump has fattened the ranks in his 2024 election campaign in jarring contrast to his much earlier skepticism about cryptocurrency supporters. 

Trump proposed keeping Bitcoin mining operations in the United States – a step toward reaping some profit from the country’s energy resources while creating jobs. This will likely appeal to states investing in energy infrastructure as a means for mining cryptocurrencies. These could include, for example Texas, which expanded its bitcoin mining capacity by 38% in 2023. 

Trump is also proposing a strategic Bitcoin reserve capable of setting up the United States as a global leader in digital assets. This is also in line with its broader platform of tax reductions that could further incentivize cryptocurrency investment. Among the proposed tax breaks is a reduction in capital gains tax from 20% to 15%, which will directly benefit crypto investors. 

Should the US take steps toward tightening controls, it may motivate other countries to take more severe measures or the establishment of similar mechanisms worldwide. 

Thus, What to Expect on Bitcoin? 

Financial analysts are divided in their projections for Bitcoin in the period leading up to the 2024 elections and afterward. In a recent Bloomberg survey, 55% of institutional investors expect Bitcoin to see increased volatility during the election. 

• Goldman Sachs: Expects Bitcoin to reach $100,000 in case of a Trump victory. It considers the expected deregulation policies and tax cuts that would favor the crypto industry.

• JP Morgan: The elections are foreseen to bring higher volatility, and – depending on the political outcome – the value of the bitcoin price to reach a range of $25,000 and $45,000.

• BlackRock and Fidelity are two institutional giants that are increasingly confident in Bitcoin. Significant money inflows into Bitcoin ETFs- $92.7 million to BlackRock and $3.9 million added by Fidelity in August 2024-already demonstrate such confidence.

• Jeffries: A Trump victory could spur speculative investments in Bitcoin, forcing its price upwards to be as high as $100,000, whereas a Harris victory could see it decline first.

• Deutsche Bank: Viewing bitcoin as a hedge against inflation, it estimates a target price of around $80,000, provided the election outcome favors cryptocurrency-friendly policies.

The election result and the ensuing economic policies may bring wide fluctuations in the price of Bitcoin. However, investors whose focus is on the long-term potential of Bitcoin are looking beyond short-term volatility. They are most interested in Bitcoin’s growing role as an inflation hedge and a hedge against currency devaluation. 

If all current trends in adoption continue, it is estimated that Bitcoin's value could reach $100,000 by 2025. This scenario is further confirmed by sustained interest by institutional investors, who increased their Bitcoin holdings by 18% in the second quarter of 2024 and points to a long-term optimistic forecast.

BTCUSD, Weekly timeframe

In the Weekly timeframe, BTCUSD formed a cup and handle pattern, which is a classic bullish pattern. 

• If the price breaks the upper trend line above the resistance of 67,000, the 90,000 level corresponding to 138.2 Fibonacci will be the nearest target;

• If resistance at 90,000 is broken, Bitcoin could reach 102,000;

Conclusion

Bitcoin stands on the cusp of great opportunity ahead of the 2024 US election. The cryptocurrency, long hailed as digital gold, could see accelerated growth and broader acceptance, especially if the election results favor policies that support cryptocurrencies. The future looks promising with growing institutional acceptance, and increasing recognition of Bitcoin as a legitimate asset. 

One thing many people remain sure of is that cryptocurrencies have now come into our lives for the long haul. Regardless of the election’s outcome, increasingly significant institutions accept and recognize Bitcoin, making its long-term dominance evident. 

Disclaimer: This material does not constitute a call to trade, trading advice or recommendation and is intended for informational purposes only.

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