By Naeem Aslam
Bitcoin has reacted swiftly to the results of the U.S. presidential election, with Donald Trump clinching victory and reclaiming the Oval Office. Trump’s stance on Bitcoin has been a supportive one, and the crypto community is celebrating his win as a potential positive for digital assets.
The price of Bitcoin touched a record $75,000, marking a significant milestone for the cryptocurrency that has spent much of the year trading below $70,000. As of Wednesday morning, Bitcoin is holding close to its peak, trading at $74,392, up 7% after an overnight surge.
The reaction is emblematic of how Bitcoin and financial markets often respond to major political events, with Bitcoin’s price volatility influenced by investor sentiment around potential policy changes.
With Trump back in office and Republicans expected to regain control of the Senate, Bitcoin’s recent upward momentum may only be the beginning.
Why Trump’s Win is Bullish for Bitcoin
The Bitcoin community has long had a favourable view of Trump due to his relatively open stance on decentralised finance (DeFi) and cryptocurrencies.
Although his policies toward digital assets have sometimes been ambiguous, he’s generally been less restrictive than other politicians. For instance, during his previous term, Trump showed a willingness to reduce regulatory constraints on the financial sector, a sentiment that extended to crypto.
Now, with Trump in power again, investors anticipate that his administration could pave the way for more favourable policies toward digital assets. The likelihood of regulatory clarity—without harsh restrictions—is seen as beneficial for Bitcoin and the broader crypto market.
In addition, with Republicans in control of the Senate, a more conservative fiscal policy could encourage the preservation of wealth in alternative assets like Bitcoin, especially given the growing concerns around the U.S. dollar.
The U.S. government deficit has been a major concern for both parties, with the deficit rising 8% in the 2024 fiscal year to $1.8 trillion. Further tax cuts promised by Trump during his campaign could add to this deficit, potentially weakening the dollar over time.
For many, Bitcoin is a hedge against currency devaluation and inflation, as it operates outside of traditional monetary policy constraints. With Trump’s win, the conditions may be right for Bitcoin’s price to continue its ascent as investors seek alternatives to the dollar.
Bitcoin’s Historic Election Year Gains
Bitcoin’s recent price rally is consistent with the cryptocurrency’s performance in past election years.
Historically, Bitcoin has delivered significant returns in the months following U.S. elections. In 2012, 2016, and 2020, Bitcoin saw returns of approximately 87%, 44%, and 145% in the 90 days following Election Day, respectively.
These surges are not coincidental; election years often align with Bitcoin’s halving cycle—a process that reduces the rate at which new Bitcoin is created, effectively lowering the supply and increasing scarcity.
The post-election surges in Bitcoin have also tended to coincide with shifts in Federal Reserve policy. With a newly elected government, investors often expect changes in monetary policy direction.
In the current scenario, market participants are eyeing the potential for further interest rate cuts from the Fed, which could further fuel Bitcoin’s appeal. Lower interest rates generally weaken the dollar, making assets like Bitcoin and gold more attractive as stores of value.
The below chart shows how high the price of bitcoin can go from here
Bitcoin chart Exness
The Fed’s Role in Bitcoin Rally
The Fed’s approach to interest rates will be a crucial factor in Bitcoin’s future performance. Over the past year, the central bank has taken a cautious stance, balancing economic support with the risk of overstimulating the economy. As inflation concerns continue, the Fed has signalled that it may be inclined to ease rates further but is moving cautiously to avoid making any policy errors.
Market players widely expect a 25-basis-point rate cut in the near future, as indicated by the CME Fed Watch Tool. However, the Fed’s guidance on future rate cuts will be the main driver for markets, particularly for Bitcoin.
If the Fed signals that additional rate cuts are likely in response to economic conditions, Bitcoin could see further gains. Reduced interest rates decrease the appeal of traditional savings, driving investors toward high-growth assets like Bitcoin.
For Bitcoin, the Fed’s dovish approach provides a strong tailwind. As rates remain low, investors are likely to continue seeking alternative stores of value that are not directly tied to the dollar. Bitcoin, with its fixed supply and decentralized nature, fits this requirement well, and a dovish Fed only amplifies its attractiveness as a hedge.
China’s Economic Impact on Bitcoin
China’s economic health plays a critical role in markets, including Bitcoin.
Recently, China’s services sector recorded its fastest growth in three months, with the Caixin/S&P Global services purchasing managers’ index rising to 52.0 in October from 50.3 in September. This uptick reflects rising confidence and business activity within China, a positive indicator for global demand.
For American companies like Nike, Starbucks, and Apple, China’s economic stability is crucial. Any positive signals from China’s economy often spill over into global markets, indirectly supporting risk assets like Bitcoin.
Moreover, should China announce further fiscal stimulus measures, it could lead to increased liquidity in markets, benefiting assets that thrive in low-interest and high-liquidity environments. Bitcoin stands to gain as investors look for non-traditional assets that can provide growth amid economic shifts.
Oil Prices and Geopolitical Uncertainty
Oil prices have shown a slight dip as markets prepare for the uncertain geopolitical landscape with Trump’s victory. OPEC+ recently delayed plans to increase production, reflecting concerns over weak demand and growing supply from non-OPEC sources.
Libya’s resumed production has added supply, balancing out some of the cuts from OPEC members like Iraq. In addition, Iran has announced plans to increase its oil output by 250,000 barrels per day.
The combination of Trump’s election win and ongoing geopolitical uncertainties creates a complex backdrop for oil prices. Trump’s stance on energy independence may favour U.S. oil producers, potentially leading to higher production domestically.
However, market dynamics, especially related to OPEC+ production decisions and the stability in the Middle East, will influence oil prices in the short term.
A stable oil market is beneficial for Bitcoin, as high volatility in oil often causes uncertainty in broader markets, impacting risk appetite for alternative assets. However, if oil prices stabilise, it could support a steady risk-on sentiment, potentially benefiting Bitcoin alongside other growth assets.
Bitcoin Increased Volatility
With Trump’s return to the White House, Bitcoin has found renewed momentum, hitting record highs and possibly poised for more gains in the coming months.
As investors navigate this new political and economic landscape, Bitcoin’s appeal as a hedge against currency devaluation and inflation appears stronger than ever. Key drivers such as the Fed’s policy direction, China’s economic health, and geopolitical developments will continue to shape Bitcoin’s path.
For now, Bitcoin remains one of the most watched assets in the financial world, and its trajectory will likely reflect the larger economic shifts on the horizon. Investors should stay alert to changes in U.S. and global policies, as well as shifts in risk sentiment, as these factors will play critical roles in determining Bitcoin’s future value.
Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.
