Traders are counting on Trump cryptocurrency to boost bitcoin price

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Hello and welcome to the FT Cryptofinance newsletter. This week we look at bitcoin’s outlook for the second half of the year.

As the US presidential election draws closer, cryptocurrency traders and analysts are hoping that a Donald Trump victory in November will snap the price of bitcoin out of its recent stupor.

The cryptocurrency, a good proxy for all crypto activity, peaked in mid-March and has struggled to make headway since April’s so-called halving event, when the number of daily bitcoins available to miners to secure the Bitcoin network dropped from 900 to 450. Since then, it has fallen about 15%, and on Friday it fell below $54,000, its lowest point since February. That defied many predictions that after the halving, bitcoin would start to recover.

Analysts have suggested that the lackluster performance is due to the number of potential sales weighing on the market: $9 billion in bitcoin and bitcoin cash sales from the defunct Japanese exchange Mt Gox; possible bitcoin sales by miners; and the signal sent over the past two weeks by U.S. and German authorities, which have shifted portions of criminal seizures to cryptocurrency exchanges.

“The two authorities hold over $15 billion worth of bitcoin, which is enough potential selling pressure to make bitcoin holders nervous in the short term,” said analysts at Ryze Labs, a cryptocurrency venture capital firm.

Traders also noted the effect of Bitcoin basis trading — in which hedge funds use borrowed money to bet on the convergence of the price of Bitcoin futures and the Bitcoin spot ETF — in dampening volatility.

As the market searches for the next catalyst, there is growing talk of a “Trump trade” – a potential rally in bitcoin in the second half of the year on the prospect of a victory for the former president in November. This belief has only grown since last week’s presidential debate.

The optimism boils down to two perceptions: Trump is the most pro-crypto candidate and his policies will make assets like bitcoin more attractive to the rest of the world.

It has already shown itself to be more open to courting the industry by hosting cryptocurrencies mining industry leaders at Mar-a-Lago, accepting crypto contributions and generally making positive noises.

Industry executives are hoping that a Trump White House and strong Republican representation in Congress will mean Washington will be more willing (finally) to adopt clear, cryptocurrency-friendly regulations.

“Cryptocurrency mining companies should also benefit, particularly from Trump’s energy policy proposals, which could allow the use of alternative energy sources for bitcoin mining,” said Manuel Villegas, an analyst at Julius Baer.[President Joe] “Biden’s previous tax proposals on cryptocurrency miners, such as a 30% tax, are unlikely to be implemented under a Trump administration,” he added.

The second perception is a question that is beginning to creep into traditional finance as well: What will Trump 2.0 mean for financial markets more broadly?

The market currently expects that stricter immigration policies, more tariffs on foreign goods and tax cuts will increase the US deficit and lead to higher inflation and higher US Treasury yields.

Geoff Kendrick, an analyst at Standard Chartered, argues that Trump’s policies could create “fiscal dominance,” when a government’s deficit and debt become so large that the central bank’s main weapon, interest rate changes, have little impact.

That would affect the price of bitcoin, he said, because the cryptocurrency tends to have a reasonable correlation with some crucial U.S. Treasury indicators, such as the spread between 2- and 10-year Treasuries and breakeven rates.

A steeper curve and higher breakeven rates than real yields should push bitcoin’s price higher, he argues, as the coin acts as a good hedge against declining confidence in the U.S. Treasury market.

Trump’s odds are based in part on whether Biden will be his opponent in November. RealClearPolitics Betting Average, a composite of prediction sites, puts Trump at 55% and Biden’s odds at just 16.5%, after plunging last week.

This suggests that if Biden stays in the race, bitcoin supporters will be reinvigorated. If he withdraws and the new candidate is seen as having a chance against Trump, bitcoin could remain in the doldrums.

But that may not matter. Theories about bitcoin, whether as a hedge against inflation or an alternative to the financial system, tend to disintegrate when faced with reality.

But it doesn’t help. As Ben Hunt, chief investment officer of asset manager Second Foundation, eloquently put it: wrote This week, on his Epsilon Theory blog, “behavior changes ONLY when we think everyone believes the information.” If enough people believe Trump will win, the cryptocurrency market will move.

According to Kendrick, the most likely outcome is that by the end of July it becomes clear that Biden will run, the probability of Trump winning increases further, and bitcoin skyrockets. [high] “In August, it’s likely, then $100,000 by US Election Day.”

All markets need a narrative to sustain their momentum. But bitcoin, which has no cash flow, needs it more than most. As excess sales are cleared by the market, expect the market to strengthen over the summer.

What do you think? Email me at philip.stafford@ft.com

Highlights of the week

• Silvergate, the defunct California bank will pay $63 million to settle civil charges brought by federal and state regulators related to the bank’s collapse following the massive fraud that brought down cryptocurrency exchange FTX.

• The US Marshals Service has selected Coinbase for jail crypto assets seized as part of U.S. government criminal investigations. The agency has previously detained assets belonging to Silk Road and Mt. Gox. The five-year contract is worth $32.5 million.

• Bitcoin mining firm Genesis Digital Assets, in which trading group Alameda Research has invested $1.15 billion, is considering a U.S. IPO, Bloomberg reports reported.

Data mining: the rebound

Here’s another indicator of the slowdown in crypto markets. Centralized cryptocurrency exchanges had a strong first half, with total aggregate spot volumes up $10.6 trillion from $4.32 trillion in the second half of last year, according to CCData. March was a record month, it added. The main driver was the arrival of U.S. spot bitcoin ETFs. However, the chart also shows how the post-halving lull has affected volumes.

Cryptofinance is edited by Laurence Fletcher. To view previous editions of the newsletter, click here here.

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