Bitcoin and the midterms

Tomorrow is the midterm elections in the US. What will the impact be for bitcoin?

Tuesday 6 November sees the midterms: the polls for all 435 seats in the House of Representatives and 35 out of 100 in the Senate. The elections are widely seen as a referendum on the Trump presidency. The electoral math tilts in favour of the Republicans for the Senate, and towards the Dems for the House.

Of course, politics is an uncertain business, and especially American politics at the moment. We might see a #MeToo-inspired backlash against the Republicans; equally, the ‘silent majority’ might quietly vote Red.

The results will help determine economic and foreign policy for the remainder of the presidency and potentially beyond, which in turn has profound implications for crypto.

Should the Dems gain strength, this will significantly hamper Trump’s legislative agenda. He may struggle to push through controversial changes relating to China and trade tariffs, sanctions on Iran, policy towards North Korea, and more. This could have a re-stabilising effect, or at least push things back towards the status quo that existed before 2017.

Conversely, a reinvigorated Trump presidency might see further tariffs and a full-blown trade war, impacting the US and global stock markets and pushing the world into a recession that already seems highly likely. Potentially a stronger dollar, in the short term, as more economic activity happens at home, but this would be limited by a host of other factors in the medium term as the global economy faltered.

Traders tend to react in the short term, so a surprise tomorrow will likely see an immediate move one way or another. For example, if the wider markets react to the results by selling dollars (perceiving a weakened US economy), dollar-denominated bitcoin holdings will be worth less (i.e. a $6,400 BTC is worth less in real terms than it was a day earlier). We might reasonably expect a sell-off as traders seek to cover other positions and increase their cash holdings. Meanwhile a result that points to a stronger economy might convince more traders to seek returns in a risk-on asset — though, as we’ve pointed out, bitcoin’s status is far from clear cut.

Longer-term, as we come into the next market cycle, bitcoin demand will likely be a function of institutional interest but also international instability — particularly from failing states, as we’ve already seen, but also should capital controls be implemented.

Just as we can’t call the elections, we can’t call the direction of movement for bitcoin. However, it seems likely that there will be a market reaction of some kind. Markets hate uncertainty, and at the very least bitcoin will probably react to the temporary resolution of that uncertainty for the dollar.

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