Bitcoin’s recent price surge may be less about speculation over the United States elections and more about market expectations of a weakening US dollar.

According to a July 22 analysis by crypto custodian Copper, the probability of former US President Donald Trump winning a second term in the November elections has led to a rally in prices. However, the movement could be tied to “market expectations that the US dollar will lose ground against other currencies, as it has historically under a Republican White House.”

Bitcoin ( BTC ) price has rallied more than 6% in the past seven days, jumping from roughly $63,500 on July 15 to around $68,000 at the time of writing.

The report notes that Bitcoin’s market behavior often mirrors that of other major fiat currencies, which rally when the US dollar Index (DXY) declines. This trend was noticeable in 2017 and 2021 when BTC reached all-time highs as the dollar weakened.

The US dollar has decreased by 10% on average during periods when a Republican president has been in office since 1969 — indicating a weaker US dollar relative to other major currencies. On the other hand, the dollar has increased by 8% on average during periods when a Democratic president has been in office since 1969.

Bitcoin price tied to US dollar performance, not politics, custodian says image 0 DXY Index change under administrations. Source: Copper

“Bitcoin’s dynamics are more complex with a tendency to move in the opposite direction of the US dollar’s strength or weakness. Additionally, any administration which delivers growth would likely see investors returning to more volatile asset classes,” noted Copper’s head of Research, Fadi Aboualfa.

According to Copper’s analysis, it’s not the absolute strength of the DXY that matters, but rather market expectations about its future performance:

“Should markets continue to anticipate a Republican win this year, there might be an assumption of potential for the US dollar to weaken, especially considering it is currently trading at its highest level since 2002.”

DXY Performance

Between 2013 and 2016, during President Barack Obama’s Democratic administration, the DXY rose by 25%. This increase can be attributed to several factors, including the economic recovery following the 2008 financial crisis, overall improved economic conditions in the US compared to other major economies, and growing expectations that the Federal Reserve would eventually begin hiking interest rates. 

In contrast, between 2017 and 2020, under the Republican administration of Donald Trump, the DXY declined by 7%. This period saw significant tax cuts, which initially boosted economic growth but also led to concerns about rising fiscal deficits. Trade tensions and tariffs imposed on other countries have also contributed to a more volatile dollar.

Since 2021, under the Biden administration, the DXY has increased by 14%, according to Copper’s analysis. A combination of factors such as higher inflation expectations, the Federal Reserve’s actions to combat inflation by raising interest rates, and global uncertainties have contributed to the rise of the greenback over the past few years.

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