While crypto investors are rejoicing in bitcoin’s surge to over $15,000, there’s been plenty of conversation and differing opinions about what’s driving the price increase and what will happen in the days and weeks ahead as election results continue to roll in. Looking at the data, we can see that the price of bitcoin is showing a negative correlation to the price of the US Dollar – so, what’s going on here?
As votes are counted, investors are showing confidence in a Biden administration win. We know that a presidential win, in conjunction with a congressional majority, will plan to deliver economic stimulus packages which will support American people and businesses through the pandemic, but is also likely to drive inflation for the US dollar. Inflation on the horizon is lowering investor confidence in USD, and is making cryptocurrencies like bitcoin an attractive, deflationary store of value. While bitcoin’s surge can seem erratic, the asset is closely increasing at the same rate that the USD is declining. You can see this effect also reflected in the equity capital markets.
It’s worth remembering that bitcoin’s value has increased by 100%+ YTD while USD is down, adding to the appeal of the asset, particularly in the face of uncertainty, and likely stimulus and inflation of USD. Looking at bitcoin, we’re seeing a fairly bullish market that is boosting crypto assets across the board today.
Looking ahead to the next few days, investors are continuing to closely track the makeup of the Senate as votes are counted. In Georgia, for example, both Senate seats are likely to be ultimately decided in runoff elections. Should these seats go to Democratic candidates, they’ll gain full congressional control, which – like a Biden win – could trigger not just swift economic stimulus packages, but further fiscal policy that may drive more investors to crypto. Moreover, this would lead to a stronger Democratic cabinet being appointed, potentially triggering the larger “blue wave” that’s been promised by Democrats.
We can expect the impact of these runoff elections to influence market confidence until the results on January 5, 2021.
From a larger economic and fiscal perspective, the case for bitcoin remains strong. Regardless of the election outcome, Modern Monetary Theory adopted by either administration will likely lead to the continued printing of reserve currencies. As such, the prospect of a currency that no government, business or individual can print infinite supplies of will remain attractive to investors. As we continue to watch the entirety of the crypto asset class over the coming days, we’re expecting the bull market to remain steady.
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