Bitcoin's Price Surge Tied to Market Expectations, Not Political Speculation

Bitcoin has experienced a recent surge in its price which may not solely be attributed to speculation surrounding the United States elections but rather to the market's anticipation of a weakening US dollar.

In a crypto custodian Copper's analysis dated July 22, it was suggested that the surge in prices could be linked to the possibility of former US President Donald Trump securing a second term in the upcoming November elections. However, this movement is believed to be more connected to the market's belief that the US dollar is likely to lose value in comparison to other currencies, a common trend under a Republican administration.

The price of Bitcoin, denoted as BTC, has risen by over 6% in the last week, transitioning from approximately $63,500 on July 15 to about $68,000 at present.

The report highlights a pattern where Bitcoin's behavior in the market often mirrors that of major fiat currencies, which tend to rally when the US Dollar Index (DXY) experiences a decline. This correlation was evident in both 2017 and 2021 when Bitcoin reached its all-time highs in conjunction with a weakening dollar.

Historical data reveals that the US dollar has typically depreciated by an average of 10% during periods of a Republican presidency since 1969, indicating its weakness against other major currencies. Conversely, during Democratic presidencies within the same timeframe, the dollar has appreciated by an average of 8%.

"Bitcoin's dynamics are intricate as it tends to exhibit an opposite movement to the changes in the US dollar's strength or weakness. Furthermore, any administration fostering growth might witness investors gravitating towards more volatile assets," commented Fadi Aboualfa, Copper's head of Research.

According to Copper's assessment, the significance lies not in the absolute strength of the DXY but in the market's predictions regarding its future performance.

• DXY Index change under administrations. Source: Copper

The analysis by Copper highlights the importance of market anticipations over the actual strength of the DXY: "Should speculators continue to foresee a Republican triumph this year, the assumption would be a potential decline in the US dollar's value, especially considering its current peak since 2002."

DXY Performance

During President Barack Obama's Democratic tenure from 2013 to 2016, the DXY surged by 25%. This increase was influenced by various factors such as the economic rebound post the 2008 financial crisis, general enhanced economic conditions in the US relative to other major economies, and the rising expectations of the Federal Reserve initiating interest rate hikes.

Conversely, under Donald Trump's Republican administration from 2017 to 2020, the DXY witnessed a 7% decline. This period saw substantial tax reductions which initially propelled economic growth but also raised concerns regarding escalating fiscal deficits. Additionally, trade tensions and the imposition of tariffs on other nations contributed to a more volatile dollar.

Since the commencement of the Biden administration in 2021, the DXY has surged by 14% as per Copper's evaluation. A confluence of factors including heightened inflation prospects, the Federal Reserve's measures to combat inflation by elevating interest rates, and global uncertainties have all contributed to the greenback's growth over the recent years.