How will the highly anticipated US election affect the crypto market?

Original author: 1912212.eth, Foresight News

There is a proverb in the former Soviet Union: You may not be interested in politics, but politics is very interested in you. Politics has an undeniable impact on individuals, institutions, companies, and business operations in the operation of the state machinery. The crypto market is no exception.

The Bitcoin halving event, which takes place every four years, has had little impact on the price of BTC. So, does the US election have any impact on the crypto market? First, let’s look at the impact of the election on the traditional financial market.

The impact of the election on traditional financial markets

The US presidential election still has a significant impact on the short-term trend of US stocks. Historically, there are often large fluctuations in the months before the election. Therefore, the market often chooses to wait and see, and wait for the results to be announced before making major decisions. It is worth mentioning that US stocks often perform better in the year after the election.

Interestingly, the election also has a certain impact on the short-term trend of gold. Similar to the US stock market, gold, as a hedge fund, also has a higher demand during the election, so it will continue to rise in the months before the election.

Although the US presidential election will have a significant impact on US stocks and gold in the short term, it has little impact on their price performance in the long term and has not caused any abnormalities in the financial market. In fact, in the short term, the election has little impact on the trend of the US dollar and the macro economy.

This is because the medium- and long-term performance of financial markets is often affected by economic parameters such as inflation trends. Who is elected president is not a big factor.

At present, the crypto market, led by Bitcoin, has risen to trillions of dollars. It has entered the mainstream vision from the so-called alternative assets and is no longer on the edge. Bitcoin is also increasingly affected by macro factors, including market liquidity, interest rate cuts and increases by the Federal Reserve, and the US election.

When the Federal Reserve cuts interest rates and global capital liquidity increases significantly, BTC prices continue to rise. Macro liquidity still plays a decisive role in the crypto market.

In addition, in recent months, the non-farm payrolls and CPI data, which are of great reference value to the Fed’s interest rate cut decision, often cause considerable volatility in the crypto market in the short term once released. BTC is currently becoming increasingly linked to the macro-financial market.

As an investor in the crypto market, the influence of macro factors can no longer be ignored.

Crypto companies continue to donate

Over the years, crypto companies have continued to donate to American politicians.

As early as May 2022, SBF had vowed to donate $100 million to $1 billion to the 2024 US election. Even before 2024, he began making large donations. As of mid-October of that year, data from Bloomberg showed that crypto industry participants donated $84.1 million to US politicians, of which about 84% came from SBF and other FTX executives.

Recently, an email from Wall Street revealed that SBFs family was suspected of illegally misappropriating more than $100 million in FTX customer funds to influence the 2022 election, triggering multiple lawsuits. The email detailed SBFs father Joe Bankmans involvement in formulating financial strategies related to political donations.

After the FTX incident, political donations from the crypto industry decreased a lot, but when it came to the 2024 election year, political donations began to increase again.

As of May this year, the crypto industry has donated $94 million to the 2024 US election, a record high. Coinbase and Ripple Labs donated $20.5 million and $20 million, respectively.

The reasons why the crypto industry continues to donate to the US election can be roughly divided into several categories. One is to influence the presidential candidates and government officials positions on cryptocurrencies through donations. After all, policy supervision has an important impact on the legitimacy of cryptocurrencies, tax systems, and industry development. The second is to protect their own interests from being impacted by legislation and supervision. In addition, crypto companies also use donations to increase brand awareness and build good public relations.

Galaxy Digital CEO Mike Novogratz once predicted that no matter who wins the 2024 presidential election, cryptocurrencies in the United States will receive favorable regulation, and most American politicians tend to support innovation in the crypto industry.

If donations have more impact on policy and regulation, then how much impact will the election have on the cryptocurrency market?

In the long run, the impact is not significant

The bull market from 2016 to mid-2020 was under the administration of Republican Trump, and from 2020 to 2024, Democratic Biden was in power. The BTC-dominated crypto market has experienced strong bull markets during their respective administrations.

If we count from the election period to September, the chart below shows that although the BTC price fluctuates, it still has a certain return. The market return is the highest during the earliest Trump administration.

The bull market cycle in 2017 and the unlimited QE launched in 2020 due to the COVID-19 pandemic brought huge capital inflows to the crypto market.

During his administration, Trump mentioned Bitcoin as a cryptocurrency on Twitter, but did not endorse its value.

During Bidens administration, he continued to be tolerant of cryptocurrencies. After the FTX incident, the US SECs crackdown became stricter. However, overall, the United States is still in a leading position in technological innovation and capital inflows in the encryption field.

The bull market cycle in 2021 and the approval of the Bitcoin spot ETF by the US SEC in early 2024 also brought considerable activity to the crypto market. As of September 11, the total net inflow of BTC spot ETFs reached US$17 billion.

It can be seen that judging from the market historical performance in the past two cycles, whether the Republican or Democratic presidential candidate came to power, it did not affect the upward trend of the crypto market.

Although the election has limited impact, key factors that will have a real long-term impact on the crypto market are still the industry’s own technological development, the Federal Reserve’s meeting decisions, and other key factors.

In the short term, the impact is greater

Although its impact on the election is not significant in the long run, it has shown a considerable impact in the short term.

On the morning of July 14, candidate Trump was assassinated. BTC rose 2% that day, breaking through the $60,000 mark, and rose again by 6% the next day to around $65,000, and then fluctuated upward.

On July 28, Trump attended the highly anticipated Bitcoin conference. Afterwards, the market paused and negative news emerged after all the positive news had been released. On July 29, Bitcoin began to decline all the way after just breaking through $70,000, and there was even panic selling in early August.

On August 23, when independent presidential candidate Robert Kennedy Jr. suspended his campaign and endorsed Trump, Bitcoin soared from $60,000 to around $65,000, a single-day increase of more than 6%.

In the recent debates among U.S. presidential candidates, the market reaction was generally cold because neither Harris nor Trump mentioned cryptocurrencies.

The US presidential election day is usually the first Tuesday of November every four years. This day is called Election Day. Therefore, the next very important time node is November 5. By then, BTC may experience drastic fluctuations after the election results come out.

From the past cycle, when the US SECs strict law enforcement leads to negative effects and causes a decline, it is often the short-term bottom range of the market. When the dust settles on the US presidential election and everything is a foregone conclusion, the strong wait-and-see funds in the crypto market change their hesitant style and start to bet boldly.

US election puts Polymarket at the center of the stage

No one expected the prediction market to become so popular this year. As a betting platform, users can directly bet on their choices with cryptocurrency, and the content includes everything from sports, culture, economy, cryptocurrency, election results, etc.

What really made Polymarket explode was the hottest event in the US presidential election this year. Trumps winning rate after the assassination, Bidens withdrawal rate, and Harris winning rate after participating in the election have caused data fluctuations in various statements and debates.

According to Dune data, Polymarkets trading volume in August reached $472 million, a record high, up more than 20% from the previous month. In addition, its monthly active users exceeded 63,000, a record high, up more than 42% from the previous month. The number of new users in August alone reached 71,000, also a record high.

The three data hit record highs, which made Polymarket receive widespread attention from the market. Currently, its election prediction data is often cited by Bloomberg, CNBC and other media, attracting widespread attention from outside the circle.

The founder of 1confirmation once wrote that the truth of the market is hard to find, and it is very meaningful for Polymarket to show the true view of the market through real money betting. The market seems to be constantly recognizing that after the November election, news, culture, sports and other markets will become more popular tracks. Polymarket is very suitable for any place where there are differences.

Polymarkket benefited from the US election event to create an out-of-circle effect, and can be regarded as one of the more successful examples of encryption products.

summary

In summary, the US election will have a certain impact on the regulation and policies of the crypto industry, but there will not be major changes. The election will also have a certain boosting effect on some product protocols such as Polymarket. In terms of market conditions, the long-term impact is not significant, but at important time points, it will still bring short-term fluctuations to the market.