Will the US Elections Be the Signal of the Crypto Rally?

Presidential elections in the USA often lead to significant changes in the markets. Election periods are periods when uncertainties reach their peak, and this greatly affects the mood and behavior of investors.

In periods of uncertainty, investors may be hesitant to take risks, and generally do. Likewise, we have been observing serious declines in both stock and crypto markets in the last few days. However, with the conclusion of the elections, decreasing uncertainties and gaining insight into the future enable investors to act in a safer environment. This environment of trust tends to stabilize the fluctuations in the markets and creates a positive atmosphere in financial markets such as Nasdaq and SP500, especially in cryptocurrency markets. In terms of investment psychology, when uncertainties decrease, both institutional and individual investors naturally tend to make bolder moves.

This situation becomes an important factor affecting investors’ decisions, especially considering the volatility of cryptocurrencies and serious price fluctuations occur. The large increases recorded in digital assets such as Bitcoin and ether after the 2016 and 2020 elections are a reflection of this decrease in trust and uncertainties. However, it seems that the policies that will be implemented by the new president to be elected specifically for this election will have a direct impact on the future of crypto assets. We will touch on this issue a little more below, but I would like to draw attention to two more issues that I think are effective in crypto rallies: Global money supply and gold rallies.

Let’s start with the global money supply. In macroeconomics, money supply is measured by 2 instruments called M1 and M2. M1 (Money 1) is the sum of cash, demand deposits and checks in the economy. M2 (Money 2) is the sum of savings and short-term deposits in addition to M1.

Monetary policies implemented by central banks are a critical factor in market dynamics. The increase in M2 money supply (monetary expansion) causes more liquidity to circulate in the market and investors’ risk appetite to increase. Bitcoin bull seasons in particular appear to be highly correlated with the increase in M2 money supply. More fiat money supply, combined with investors’ willingness to invest more, also increases demand for cryptocurrencies, especially in commodity and stock markets. In addition, expansionary monetary policies increase interest in cryptocurrencies by increasing inflation expectations.

Investors determine their strategies by monitoring the reflections of expansionary monetary policies in the cryptocurrency markets, which contributes to the rise in Bitcoin prices. Therefore, we can say that the monetary policies of central banks and the increase in M2 money supply play an important role in the rise of cryptocurrency markets.

In the Macromicro chart below, the correlation of M2 supply with crypto rallies is clearly visible.

As we mentioned above, another important issue is the candidates’ approach. Particularly in the upcoming elections, the candidates’ perspectives on cryptocurrencies are also a critical evaluation element for investors.

While Donald Trump has shown a supportive attitude towards cryptocurrencies, Kamala Harris takes a more cautious approach. The more liberal policies implemented by Trump during his previous presidency created a positive atmosphere among crypto investors and contributed to the rise in prices. Harris’ stricter regulatory stance could create uncertainty, which could affect investors’ strategies.

At this point, which candidate will be chosen is directly linked not only to the current situation but also to possible future regulations. If a leader like Trump takes office, the positive impact on cryptocurrencies may continue, which may increase investors’ confidence in the markets. However, under Harris’ administration, cryptocurrencies will be subject to greater supervision, Gary Gensler will become Treasury Secretary, and the possibility of increased regulatory obstacles may negatively affect investors’ risk perception. Considering that monetary expansion is inevitable due to the system, the rally expectation is within the expectation regardless of the candidate, but the length and size of the rally seem to be highly dependent on the candidate.

Finally, let’s take a look at the ounce of gold issue. Gold has been considered one of the most reliable investment instruments for many years. In addition, Bitcoin has been referred to as “digital gold” in recent years, further deepening the relationship between these two assets.

In the crypto rallies of 2021 and early 2024, the increase in gold prices provided a similar momentum for Bitcoin. In parallel, the fact that gold prices have reached new record levels in the last three or four months shows that we need to monitor Bitcoin’s price movements. This relationship becomes more evident especially in periods when inflationary pressures increase. While gold has traditionally been seen as an asset that protects against inflation, Bitcoin serves a similar function, offering an interesting alternative for investors.

Rising gold prices may increase investor demand for Bitcoin, which may in turn affect Bitcoin’s price. Additionally, this interplay between gold and Bitcoin gives us new perspectives on how both assets are valued. Therefore, investors should carefully monitor the fluctuations in gold prices and examine the possible trends of Bitcoin in this context.

In conclusion, the US presidential election has a big impact on crypto markets, but it is not a single trigger. The decrease in post-election uncertainties, the increase in the M2 money supply, the candidates’ perspectives on cryptocurrencies and the relationship between Gold and Bitcoin are factors that must be taken into consideration. We will experience and see together whether history will repeat itself and whether there will be a rally again after the election with the influence of other factors.