How will the U.S. election, which everyone is talking about, affect the cryptocurrency market?

Author: 1912212.eth, Foresight News

There is a saying 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 the operation of the national machinery, affecting individuals, institutions, companies, and business operations. The cryptocurrency market is no exception.

The Bitcoin halving event, which occurs every four years, has had a negligible impact on the price of BTC. So, does the U.S. election have an impact on the cryptocurrency market? First, let's observe the effects of the election on traditional financial markets.

Impact of the Election on Traditional Financial Markets

The U.S. presidential election still has a significant short-term impact on the stock market. Historically, there tends to be considerable volatility in the months leading up to the election. As a result, the market often chooses to wait and see, making major decisions only after the results are revealed. It is worth mentioning that the U.S. stock market often performs better in the year following the election.

Interestingly, the election also has a certain impact on the short-term price of gold. Similar to the stock market, gold, as a safe-haven asset, sees increased demand during the election period, leading to a rise in price in the months leading up to the election.

Although the U.S. presidential election has a notable short-term impact on the stock market and gold, its long-term influence on their price performance is relatively small and does not cause any anomalies in the financial market. In fact, in the short term, the election has little effect on the dollar and macroeconomic trends.

This is because the medium- to long-term performance of financial markets is often influenced by economic parameters such as inflation trends. Who is elected president is not a major influencing factor.

Currently, the cryptocurrency market, led by Bitcoin, has risen to several trillion dollars, transitioning from a so-called alternative asset to mainstream visibility, no longer on the fringes. Bitcoin is increasingly influenced by macro factors, including market liquidity, Federal Reserve interest rate changes, and U.S. elections.

When the Federal Reserve lowers interest rates and global capital liquidity increases significantly, it is also a time when BTC prices continue to rise; macro liquidity still plays a decisive role in the cryptocurrency market.

Additionally, in recent months, key economic indicators such as non-farm payroll data and CPI data, which are important references for the Federal Reserve's interest rate decisions, have often caused significant fluctuations in the cryptocurrency market upon release. BTC is increasingly correlated with the macro financial market.

As cryptocurrency market investors, the influence of macro factors can no longer be ignored.

Continuous Donations from Cryptocurrency Companies

Over the years, cryptocurrency companies have continuously donated to U.S. politicians.

As early as May 2022, SBF boldly stated that he would donate between $100 million and $1 billion in the 2024 U.S. election. Even before 2024, he began making substantial donations. By mid-October of that year, Bloomberg reported that participants in the cryptocurrency industry had donated $84.1 million to U.S. politicians, with about 84% of the amount coming from SBF and other FTX executives.

Recently, an email from Wall Street revealed that SBF's family was suspected of illegally diverting over $100 million of FTX customer funds to influence the 2022 election, leading to multiple legal lawsuits. The email detailed SBF's father, Joe Bankman, participating in the development of financial strategies related to political donations.

After the FTX incident, political donations from the cryptocurrency industry decreased significantly, but as the 2024 election year approached, political donations began to increase again.

As of May this year, the cryptocurrency industry had donated $94 million for the 2024 U.S. election, setting a new historical high. Coinbase and Ripple Labs donated $20.5 million and $20 million, respectively.

The reasons behind the cryptocurrency industry's continuous donations for the U.S. election can be roughly categorized into several types. First, donations are made to influence presidential candidates and government officials' positions on cryptocurrencies, as policy regulation significantly impacts the legality, tax system, and industry development of cryptocurrencies. Second, they aim to protect their own interests from being affected by legislation and regulation. Additionally, cryptocurrency companies also use donations to enhance brand awareness and build good public relations.

Mike Novogratz, CEO of Galaxy Digital, has predicted that regardless of who wins the 2024 presidential election, U.S. cryptocurrency will receive favorable regulation, as most U.S. politicians tend to support innovation in the cryptocurrency industry.

If donations primarily influence the regulatory policy aspect, how significant is the election's impact on the cryptocurrency market?

Long-Term Impact is Minimal

During the bull market from 2016 to mid-2020, the Republican Trump was in power, while from 2020 to 2024, the Democrat Biden took office. The cryptocurrency market, led by BTC, experienced strong bull markets during their respective terms.

If we consider the election period until September, the following chart shows that although BTC prices may fluctuate, they still yield certain returns, with the highest market returns during Trump's earliest term.

The bull market cycle in 2017 and the unlimited QE initiated in 2020 due to the COVID-19 pandemic brought significant capital inflows to the cryptocurrency market.

During Trump's presidency, he mentioned Bitcoin and cryptocurrencies on Twitter but did not acknowledge their value.

Under Biden's administration, a tolerant attitude towards cryptocurrencies continued, although after the FTX incident, the SEC's crackdown became stricter. Overall, the U.S. remains a leader in technological innovation and capital inflow in the cryptocurrency field.

The bull market cycle in 2021 and the SEC's approval of a Bitcoin spot ETF at the beginning of 2024 also brought considerable activity to the cryptocurrency market. As of September 11, the total net inflow of Bitcoin spot ETFs reached $17 billion.

Thus, from the historical performance of the past two market cycles, whether a Republican or Democrat presidential candidate takes office does not significantly affect the upward trend of the cryptocurrency market.

Although the election's influencing factors are limited, the long-term impact on the cryptocurrency market is still primarily driven by the industry's own technological development and key factors such as Federal Reserve meeting decisions.

Short-Term Impact is Significant

While the long-term impact of the election is minimal, in the short term, it shows considerable influence.

On the morning of July 14, candidate Trump was attacked, and on that day, BTC rose by 2%, breaking through the $60,000 mark, and the next day it rose again by 6%, reaching around $65,000, and continued to rise afterward.

On July 28, Trump attended a highly publicized Bitcoin conference, and afterward, the market showed negative trends after the positive news had been fully priced in. On July 29, Bitcoin began to decline after just breaking above $70,000, even experiencing panic selling in early August.

On August 23, when independent presidential candidate Robert F. Kennedy suspended his campaign and supported Trump, Bitcoin surged from $60,000 to around $65,000, with a single-day increase of over 6%.

In recent days, the debates among U.S. presidential candidates have generally received a lukewarm response from the market, as neither Harris nor Trump mentioned cryptocurrencies.

U.S. presidential election day is typically the first Tuesday of November every four years. This day is known as "Election Day." Therefore, the next important time point is November 5. At that time, BTC may experience significant volatility following the election results.

From past cycles, when the SEC's strict enforcement leads to negative news causing a decline, it often marks a short-term bottom for the market. When the presidential election results are finalized and everything is settled, the substantial waiting funds in the cryptocurrency market shift from indecision to bold betting.

The U.S. Election Brings Polymarket to the Forefront

No one expected the prediction market to become so popular this year. As a betting platform, users can directly use cryptocurrencies to bet on their choices, covering a wide range of topics, including sports, culture, economics, cryptocurrencies, and election results.

What truly propelled Polymarket to fame was this year's highly anticipated U.S. presidential election. The winning probability of Trump after the assassination attempt, Biden's withdrawal probability, and Harris's winning probability after entering the race have all caused fluctuations in data amid various statements and debates.

According to Dune data, Polymarket's trading volume reached $472 million in August, setting a new historical high with a month-on-month increase of over 20%. Additionally, its monthly active users exceeded 63,000, also a historical high, with a month-on-month increase of over 42%. In August alone, the number of new users reached 71,000, setting another historical record.

The three data points reaching historical highs have drawn widespread attention to Polymarket. Currently, its election prediction data is often cited in reports by Bloomberg, CNBC, and others, attracting significant interest from outside the industry.

The founder of 1confirmation once wrote that the truth in the market is hard to find, and Polymarket's use of real money betting to reflect the market's true views is very meaningful. The market seems to continuously recognize that after the November election, news, culture, sports, and other markets will become hotter tracks, making Polymarket very suitable for any area of disagreement.

Polymarket has benefited from the U.S. election event, creating a buzz effect, making it one of the more successful examples among cryptocurrency products.

Conclusion

In summary, the U.S. election event will have some impact on the regulation and policies of the cryptocurrency industry, but significant changes are unlikely to occur. The election will also have a certain amplifying effect on some product protocols like Polymarket. In terms of market trends, the long-term impact is minimal, but during important time points, it will still bring significant short-term volatility to the market.