Introduction
The crypto-asset market has a history of being influenced by significant events, often leading to major market movements. The 2016-2017 cycle was largely driven by the industry itself, expanding its reach beyond early adopters. In contrast, the 2020-2021 surge was fueled by unprecedented COVID-era interest rate cuts.
The Looming 2024 U.S. Elections: A Catalyst for Crypto
Two powerful catalysts are converging in the crypto market:
- The looming 2024 U.S. elections
- A nascent global liquidity cycle for risk assets
This potent combination has the potential to shatter bitcoin’s $58,000 to $70,000 trading range, where it has largely remained since late March.
The Importance of the 2024 U.S. Elections
The 2024 U.S. elections mark several firsts for crypto, including:
- Relevance in political discourse and campaign financing: Crypto has emerged as a relevant topic in political discussions, with many campaigns exploring its potential.
- Polymarket’s real-time estimates of consensus on election results: Polymarket now provides real-time estimates of consensus on election results, with over $1 billion at stake.
The Relationship Between Election Outcomes and Crypto Prices
A chart shows the relationship between two factors over 3-day periods: changes in Republican win odds on Polymarket and changes in bitcoin prices as a proxy for overall crypto market performance. Different election phases are color-coded:
- Gray: Initial phase (before June 26)
- Red: Period of Republican momentum (between the end of June and the end of July)
- Blue: Democratic gains (between the end of July and mid-August)
- Black: Final stretch (since mid-August)
The chart shows no clear, consistent trend between election outcomes and crypto prices so far.
Inconsistent Relationship Between Election Outcomes and Crypto Prices
This dynamic is evident across all phases highlighted in different colors throughout the scatterplot. Although the relationship is stronger during the phase of Republican momentum, it still explains less than 20% of bitcoin price movements.
However, it’s possible that this relationship strengthens as we approach Election Day, now less than one month away.
Interest Rate Outlook Hints at Novel Regime for Crypto Prices
Recent global liquidity shifts have driven markets worldwide, including crypto. The Federal Reserve’s strong start to this rate-cut cycle, coupled with China’s surprising market-lifting measures, likely fueled crypto’s recent price surge.
Examining Crypto Prices Against Rate Environments
A chart shows the effective federal funds rate alongside Treasury constant-maturity yields from 1-year to 30-year tenors. For context, the lower chart displays bitcoin’s USD price (in log scale for perspective), with color-coded market cycles:
- Green: 2016-2017 and 2020-2021 bull markets
- Red: 2018 and 2022 bear markets
This chart suggests that a soft landing with lower rates would create an unprecedented macro backdrop for crypto.
Macroeconomic Factors Influencing Crypto Prices
Macro factors are expected to significantly influence crypto prices in the near term, as evidenced by strengthening correlations between crypto and broader risk assets.
Looking Ahead: The Next One to Three Months
Low crypto liquidity following Labor Day indicates a market in wait-and-see mode. While factors such as geopolitical tensions and supply/demand imbalances can still influence the market, two primary drivers most likely to define market direction into 2025 are:
- The upcoming election: The elections will be crucial in revealing how trends will unfold.
- Global liquidity conditions: Global liquidity shifts have driven markets worldwide, including crypto.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
