Election 2020: What a Trump or Biden Administration Could Mean for Crypto

KEY TAKEAWAYS 

  • U.S. markets are warming to the possibility of a Democratic sweep, which could offer better regulatory clarity for Bitcoin to advance
  • A Democratic sweep would be the best scenario for risky assets, including cryptocurrency, as large fiscal stimulus packages and budget deficits become probable
Source: Chip Somodevilla/Getty Images

With the American presidential election just around the corner, the U.S. stock markets suffered their worst defeat in over seven months. The VIX “fear index” went through the roof, posting a record high spike since June. The reality invariably resembles a Monty Hall problem, behind each door is an unresolved problem, which in this instance would be the rising number of COVID-19 cases, the erosion of pre-election fiscal stimulus hopes, and a contested election. Opening these doors could reveal a conflux of market-swinging events that have collectively deteriorated the market’s appetite for risks and opens up speculation about post-election prospects. 

Despite the jaw-dropping crumble of U.S. stock markets last week, the steady increase of the U.S. yield curve indicates that market sentiment has shifted away from deflation fears and is poised to ride the reflation trade. A steep rise in the yield curve is often fueled by improved future inflation expectations, indicating that investors are more confident about the ability of the government to stimulate growth via relief packages. 

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Source: Statistica

There is a lot riding on the result of the upcoming U.S. election on Nov. 3, with the two candidates presenting starkly different visions for the country’s future. A second term for President Trump or even a Biden triumph would shape how millions of people plan and manage their finances for years to come. Even though both candidates are looking to provide greater relief to beat the pandemic fallout.  

President Trump, who clashed with his own party over discussions of a stimulus package, has repeatedly expressed desires of “going higher” than the latest $1.8 trillion framework proposed by the White House. His enthusiasm received little support within the party, with the Republican Senate majority leader foreseeing a scaled-down package over an extended deadline. The schism within the Republican party is indicative of the bleak prospect of releasing a much-needed recovery package post-election. 

If so, then reflation expectations must come from the Democrats. The party supports a much bigger package to stabilize the U.S. economy. In fact, the market is warming toward the idea that a Biden presidency would be bullish for stocks, albeit with strings attached. A Biden victory needs to be accompanied with a Democratic sweep that guarantees Democrats’ majority of both the Senate and the House of Representatives. 

Currently, the Democrats have clinched a substantial 8% lead in the House and are closing in on Republicans’ majority in the Senate. Some ratings agencies project the probability of a Democratic control to a coin toss, while Moody’s Analytics takes that one step further predicting that a Biden win with a divided Congress is the most likely scenario. On the other hand, a Trump win with the status quo unchallenged is also highly probable. 

However, there is also a good chance that the Democrats could win both the Senate and the House, but the reverse — a Republican sweep — is remotely possible. Either way, a split congress, regardless of who wins the presidency, is less likely to engender changes necessary to lift the economy back on track. 

Source: Moody’s Analytics

The optimal outcome for the crypto community would undoubtedly be a Democratic sweep. The economic proposals of Biden, a fervent tech supporter, will bring out a stronger U.S. economy in light of his progressive attitude towards expansionary fiscal policies. It could also ensure that employment rates may be restored to the pre-pandemic level.

Biden’s focus on education, clean energy, and infrastructure could contribute to the economy’s long-term growth potential. In addition, his open attitude towards tech innovations should shine favor on the future price movement of BTC. A new leadership would be more proactive in offering greater regulatory clarity for the crypto space and nudge the industry towards broader mainstream adoption.

If the Republicans were to stage a comeback against all odds, market participants would expect the turn of events to be more complicated due to the restraints imposed on releasing fiscal policies. Even though sustained low interest rates would still benefit BTC — as both macro indicators and on-chain metrics suggest. It’s expected that BTC’s price would continue to advance regardless of who sits in the Oval Office, though it would still take a long time before the economy recovers.