Bitcoin has consistently seen price drops before U.S. presidential elections, followed by substantial post-election rallies. Explore the factors influencing this trend.
Bollywood Fever: In the lead-up to the last three U.S. presidential elections, bitcoin’s price has shown a consistent pattern — experiencing a notable downturn approximately two to three months before each election.
During previous election cycles, such as in 2016 and 2020, bitcoin experienced notable dips before the election, followed by substantial post-election rallies. This pattern was also observed in 2012, indicating a recurring trend linked to the election season,” Bitfinex analysts told The Block.
For instance, two months before the 2020 U.S. election, bitcoin experienced a sharp 16% drop, according to Coingecko data. Around two months before the November 3, 2020, election, bitcoin’s price fell from around $12,000 to about $10,000. After a period of volatility, it then recovered around the time of the election.
In 2016, the pre-election decline was even more pronounced, with a 30% drop occurring about three months before the election. Coingecko data shows that bitcoin’s price fell from around $750 to a low of $500, a decline of over 30%, approximately three months before that year’s election.
In the earlier days of the digital asset’s history, in 2012, there was a significant 75% drop approximately 80 days before the election.
Factors Affecting Bitcoin’s Pre-Election Price Movement
The analysts at Bitfinex attributed this pattern to several key factors, including seasonality and market timing, market uncertainty, and correlation with traditional markets.
“The timing of U.S. presidential elections aligns with the end-of-year period, which is traditionally volatile for financial markets, especially in the summer. This seasonality affects all markets, including bitcoin,” Bitfinex analysts explained.
They also noted that U.S. elections introduce significant uncertainty, which typically negatively impacts financial markets, including bitcoin. “The uncertainty surrounding future economic policies, regulatory changes, and overall political stability creates a risk-averse environment. For example, during the 2020 election, bitcoin’s price fluctuated sharply due to the combined uncertainties of the election and the COVID-19 pandemic,” they added.
Additionally, bitcoin has increasingly shown a correlation with traditional financial markets, particularly the S&P 500 and Nasdaq. “When the S&P 500 experiences volatility or a pullback, bitcoin often mirrors this behavior,” the analysts said. However, this pattern is not currently observed, as the S&P 500 is approaching all-time highs leading up to the 2024 election.
Bitcoin’s Post-Election Historic Performance
While the pre-election dip might raise concerns for some investors, historical patterns suggest that bitcoin often rallies after elections. “After the 2016 election, bitcoin’s price surged as market certainty returned. A similar pattern was observed in 2020, where bitcoin’s price increased sharply in the months following the election, driven by renewed confidence in the market and economic recovery efforts,” the Bitfinex analysts said.
For example, in 2020, bitcoin surged approximately 320% over the 160 days following the election. Similarly, in 2016, the cryptocurrency experienced an extraordinary increase of over 2,000% within 400 days, with a notable 300% rise in just 200 days, according to Coingecko data.
As of now, the price of bitcoin has decreased by over 4% in the past 24 hours, trading at $59,778 as of 6:49 a.m. ET. Bitcoin’s dominance stands at 53.7%, while ether’s dominance is at 13.8%, according to CoinGecko data.
This recurring trend suggests that while bitcoin’s price may experience volatility leading up to U.S. elections, historical data indicates a strong likelihood of post-election rallies, offering a potential opportunity for investors.
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