Crypto’s Trump Card?

by Ryan Shea

After late last month threatening to break the range lows that held since early spring, crypto prices rebounded in July as evidenced by the Trakx benchmark Top10 Crypto CTI increasing in value by 8%, bringing the year-to-date return to 38%. As a result of the bulls regaining control of the market, Bitcoin – the seminal cryptocurrency – moved back to within 6% of the all-time high witnessed in the euphoric aftermath of the SEC green lighting spot Bitcoin ETFs earlier in the year. This month’s long-hoped-for launch of spot ETH ETF products in the US certainly helped improve investor sentiment because it confirmed the ongoing maturation of crypto as an asset class¹ even though Ether itself experienced a classic “buy the rumour, sell the fact” price dynamic². That said, this was not the primary driver of the bullish price action. For that we have to thank politics, specifically in the US.

Political Dominance

In a year with a record number of voters worldwide going to the ballot box, politics was always going to be a dominant force impacting financial asset prices in 2024 and cryptocurrencies were no exception. In fact, as I argued in the previous monthly update, the shift in the political landscape observed in many countries following recent elections is being driven by a rising tide of social pessimism and increased distrust in the economic and political system delivering for the average person, and these same factors are also driving crypto adoption.

Former US President, and this year’s Republican candidate, Donald Trump and his team, either deliberately or intuitively, understood this connection. And, given the Biden administration’s widely acknowledged negative stance with regard to the world’s newest asset class, it made perfect political sense to position Trump as the pro-crypto candidate. In doing so, crypto became a significant political wedge issue in the White House race. The obvious consequence of this political positioning is that anything perceived as increasing the odds of Trump winning the election would be viewed as a bullish development for crypto prices.

This connection was spectacularly illustrated after the failed attempt to assassinate Donald Trump on July 13. The last time there was a failed assassination attempt on a US President was Ronald Reagan some 43 years ago and it generated a huge boost in his approval ratings, increasing from 51% prior to the attempt to 68% a couple of months later. Obviously, unlike Reagan, Trump is not in office but seeking re-election. Nevertheless, historical precedent suggests US voters tend to rally around politicians who are attacked amid a groundswell of public sympathy – a commodity typically in short supply when it comes to Donald Trump. Indeed, opinion polls confirmed as much with Trump taking a three point lead over Biden in the days following the assassination attempt– see image.

US Presidential Election Poll Tracker

Source: https://projects.fivethirtyeight.com

Pro-Crypto Credentials

Given this rise in support for Trump in the polls it is not surprising that in the days following the assassination attempt crypto prices started to track higher. Moreover, helping to perpetuate the rally was Trump’s pick for vice president. Overlooking Rubio and Burgum, Trump chose Ohio Senator, JD Vance, who having worked for Silicon Valley based venture capital firms is both familiar and supportive of tech and crypto. Indeed, Vance has not only been publicly critical of the SEC’s negative attitude towards crypto under Democrat-nominated Gary Gensler³ but his financial disclosures confirm he is the first candidate on a presidential ticket to own crypto – Bitcoin in his case.

In making this choice for his running mate, and by announcing he backs the establishment of an official US Bitcoin reserve at last month’s Bitcoin 2024 conference in Nashville , Trump clearly enhanced his team’s pro-crypto credentials last month. As a result, many players in the industry anticipate that a Trump/Vance victory in November would result in a handbrake turn in the attitude of the US administration towards digital assets, providing additional fuel for the bull market.

Biden Bows Out

The stars appeared to be aligning for a Trump victory and the ushering in of a more crypto-friendly regime in the US (crypto positive developments). However, the rally faltered following the sudden announcement by Joe Biden that he would no longer seek re-election after coming under substantial pressure from leading Democrats to stand aside amid worries about the health of the 81 year old presidential candidate. With Biden’s exit, which forces the Democrats to choose a new candidate, inevitably this injects some uncertainty as to the outcome of the November presidential race, meaning a Trump victory was not the slam-dunk many crypto players had started to assume and price-in.

The front-runner to replace Biden as the Democratic nominee is Kamala Harris, the current vice president. Not only did Biden publicly endorse her as his replacement but many other influential party members, including potential presidential candidates such as Whitmer and Newsom, also backed her. While crypto players celebrated this development by pushing up the price of KAMA – a meme coin dedicated to the VP – to an all-time high, the bigger and more pertinent question for the crypto industry, given that a Trump victory is widely viewed as the most bullish outcome, is what are the chances Harris can beat him in November’s vote?

Uphill Battles

Harris’s approval rating as vice president was not much better than Biden’s as president (13% net disapproval versus 17%) and an opinion poll conducted in early July looking at the performance of several leading Democrat candidates versus Donald Trump showed Harris slightly behind (42% versus 43% for Trump). Assuming this result was replicated at the ballot box, Harris would be unable to stop Trump from returning to the White House as the 47^th US President.

Admittedly this survey was conducted a couple of weeks prior to the assassination attempt and Biden’s decision to pull out of the race – two rather substantial and potentially opinion shaping events – but it nevertheless illustrates the uphill battle facing the Democratic nominee, whoever that turns out to be. (The formal decision will be made at next month’s DNC but it appears highly likely that Harris will secure the nomination given the public-backing she has received from leading members of the party and, even more importantly, donors).

Remarkably, the above poll indicates that there is only one Democratic challenger capable of beating Trump and that is former first lady Michelle Obama. But, she has expressed no desire to follow in her husband’s footsteps and once again inhabit 1600 Pennsylvania Avenue, Washington DC.

More recent polls suggest Harris has gained some positive momentum with one or two even putting her slightly ahead of Donald Trump. Moreover, it is clear her team has managed to secure a considerable amount of new donations. That said, prediction markets like Polymarket – whose odds are based on $344mn worth of bets – still have Trump out in front by some considerable margin – see image.

Source: Twitter

Crypto Pivot

Clearly, the political situation in the US is rather fluid, meaning the outcome of November’s presidential election is not a slam dunk at this stage in the race. Things can, and will, change over the coming four months. For one thing, under the “new leadership” banner the Democrat campaign has the opportunity to change tack in their election strategy in an attempt to persuade voters disillusioned with Biden to back the new challenger to Trump.

Unlike Biden, Harris can play the age card because Trump is 20 years her senior and not much younger than Biden – a topic that clearly has resonated with US voters. Additionally, Harris is also able to highlight other rather obvious differentiating factors versus Trump based on gender and ethnic backdrop. (And let’s not forget a possible Taylor Swift wild card!)

While Harris’s team are likely to play up these key differences between the two candidates in an effort to attract voters, in one key area her strategists may view it to be advantageous for her to close the gap with Trump. For instance, a pivot to a more crypto-friendly stance by the Democrats would weaken one of the key wedge issues that Trump has sought to exploit in his election campaign when he was facing Biden – an idea that appears to be gathering some momentum.

Hodlers – Who And Why?

Given the rather obvious gap between the stances of the Republican and Democrat parties towards crypto, one could be forgiven for thinking that the benefits from pivoting to a more pro-crypto stance by Harris would be fruitless. After all, there is a strong presumption in the crypto world that hodlers, and especially Bitcoiners, are right-leaning Conservative/Libertarians and hence unlikely ever to vote for Democratic candidates.

However, in a just published study looking at the social attitudes of over 3,500 US Bitcoin owners by The Nakamoto Project the authors found the following:

“Bitcoin owners are politically just like the rest of America: mostly moderate, with smaller conservative and liberal contingents. Bitcoin owners look like other Americans in most demographic respects, with one striking exception: they tend to be younger and male. What correlates most strongly with Bitcoin ownership is not who you are, so to speak, but how much you know about Bitcoin, and whether you think it is useful, trustworthy, and good.”

Bitcoin Ownership By Political Orientation

Source: The Nakamoto Project

This apolitical perspective should not really be that surprising. As I noted in the previous Monthly Update, the political shifts we are witnessing in recent elections is not about voters moving right or left but rather it represents a protest against the perceived failure of the economic/financial system to deliver for the majority. If the incumbent government is left wing this looks like a shift to the right, but if the incumbent government is right wing it looks like a shift to the left. To wit,

“[it] speaks to the depth of public dissatisfaction with the current system and the desire of voters to mete out a punishment to incumbent governments regardless of where they sit on the political spectrum.”

Given this interesting data about the apolitical nature of Bitcoin owners, which one can probably extrapolate to crypto more broadly, I personally think that the odds of the Democrats pivoting to a more pro-crypto stance under Harris is quite high. Just like Trump embracing crypto made political sense, so too does it for Harris. Critically, while this could serve to muddy further the outcome of November’s Presidential election, it would imply a win for crypto regardless of who replaces Biden as the next inhabitant of the White House.

1 The ETH ETF launch also fuelled speculation as to which cryptocurrency the US authorities might permit next (Solana being the current favourite amongst crypto players). For mre details on the Solana blockchain – see: https://trakx.io/resources/research/solana-light-at-the-end-of-the-tunnel/

2 Reminiscent of what was observed when the spot Bitcoin ETF launched back in January, there was a large discrepancy between Grayscale, whose Ethereum ETF was created via the conversion of its ETH trust, and the other newly launched ETFs. Grayscale witnessed $1.5bn of net selling in the first week of trading as investors sought to leave the previously hard to exit Trust, but the other seven funds only witnessed $1.2bn of net purchases (BlackRock was again the most successful AUM raiser) leaving a cumulative net outflow of $340m for the ETH ETF.

3 If elected, Trump has vowed to sack Gensler as head of the SEC on day one of his presidency.