In the wake of the November 5 election, which saw Donald Trump returned to the U.S. presidency, bitcoin has made a striking leap of approximately 47%, significantly outpacing the S&P 500’s more modest 4% gain. This surge in bitcoin’s value largely reflects the incoming administration’s favorable stance towards cryptocurrency, along with a Republican majority in both the Senate and the House of Representatives, which could influence future legislation impacting the crypto market.
Andre Dragosch, the Head of Research at Bitwise in Europe, shared insights with CoinDesk regarding the factors contributing to the divergence between bitcoin and traditional stocks. He attributed the lackluster performance of the stock market in part to the Federal Reserve’s recent hawkish approach to interest rates, which has led to a revised outlook for rate cuts in 2025, creating uncertainty within traditional financial sectors.
Interestingly, in a climate where the value of the U.S. dollar—measured by the DXY index—has increased by 5%, one might expect bitcoin to face challenges. However, Dragosch notes that factors like the persistent supply deficit of bitcoin on exchanges have strengthened its resilience. Despite recent profit-taking from investors, the supply of bitcoin available on exchanges continues to dwindle.
Recently, a noteworthy trend has emerged: bitcoin and the S&P 500 have started moving in closer relation, with their correlation reaching 0.88 over the past 20 days. This hints at an increased alignment between the two markets. Though on-chain factors may bolster bitcoin’s performance in the near term, Dragosch warns that the broader economic landscape could introduce short-term risks due to the tightening link with stock market dynamics.
The Impact of Bitcoin’s Performance Post-Election
Here are the key points regarding the performance of bitcoin in relation to the recent U.S. election outcomes and broader economic factors:
- Bitcoin’s Performance
- Since Donald Trump’s election on November 5, bitcoin (BTC) has surged approximately 47%.
- This performance sharply outpaces the S&P 500’s modest 4% advance during the same period.
- Political Climate Favorability
- Trump has expressed a favorable stance towards bitcoin and cryptocurrency.
- The Republican majority in the Senate and House may influence potential legislation impacting the crypto market.
- Federal Reserve’s Influence
- Andre Dragosch noted that the stock market is negatively impacted by the Federal Reserve’s hawkish stance regarding interest rate cuts.
- Rate cuts projected for 2025 have been revised down, reducing traditional market expectations.
- Market Dynamics
- The DXY index, which reflects the U.S. dollar’s strength, has risen 5%, increasing pressure on risk assets like stocks and bitcoin.
- Despite typical pressure, bitcoin has remained relatively stable due to a supply deficit on exchanges.
- Correlation Trends
- Bitcoin and the S&P 500 have started to demonstrate increased correlation, reaching 0.88 over the last 20 days.
- This correlation suggests that movements in the stock market may significantly impact bitcoin’s price trajectory.
- Future Outlook
- On-chain factors are expected to provide support for bitcoin at least until mid-2025.
- However, the macroeconomic climate poses potential short-term risks due to the high correlation with the S&P 500.
“My view on bitcoin versus S&P 500 is that the stock market has been negatively affected by the Fed’s hawkish rate cut in December.” – Andre Dragosch
The relationship between political decisions, Federal Reserve policies, and market dynamics can significantly impact an investor’s strategy and considerations within the cryptocurrency space.
Bitcoin’s Performance Amid Political and Economic Changes: A Comparative Analysis
Bitcoin’s remarkable ascent following Donald Trump’s election underscores a significant divergence from traditional stock performance, notably the S&P 500. With BTC soaring by approximately 47%, while the S&P 500 barely limps ahead at 4%, one can’t help but notice the competitive edge crypto assets have found in this evolving political landscape. Trump’s overt cheerleading for cryptocurrency, combined with a Republican majority in Congress, may serve as a fertile ground for progressive crypto regulations and infrastructure development, which could further bolster investor confidence in bitcoin and similar assets.
However, the contrasting economic realities are equally vital. As noted by Andre Dragosch, the adverse impact of the Federal Reserve’s hawkish stance on interest rates has weighed heavily on traditional markets. While bitcoin has shown resilience, it must contend with macroeconomic turbulence. The rise of the DXY index, while a boon for the dollar, poses a challenge for risk assets, including bitcoin. This balancing act creates a dynamic where crypto investors enjoy volatility and potential gains but remain anchored to the whims of broader economic signals, leading to heightened risk for the less risk-averse investors.
In terms of beneficiaries, those with a solid understanding of crypto dynamics and a willingness to embrace the fluctuations are likely to find opportunities. Institutional investors rooting for less regulatory scrutiny may also benefit from a favorable legislative environment stemming from the Republican sweep. Conversely, the correlation between bitcoin and traditional markets, now at 0.88, could signal problems for more conservative investors in the face of a volatile stock market, particularly if macroeconomic conditions deteriorate swiftly.
Furthermore, while on-chain factors seem to present a strong tailwind for bitcoin in the medium term, there’s an inherent caution associated with investments in a highly correlated asset class during uncertain times. New investors should tread carefully, as the interplay between politics, market sentiment, and regulatory developments could pose significant risks. Those inclined toward traditional stocks might find their choice for portfolio diversification turning into a double-edged sword, given the intertwined fates of bitcoin and the broader market landscape.
