As the controversy surrounding the 2020 US election drags on, many questions remain. Will the results be contested in the Supreme Court, will Donald Trump concede, or will there be a recount? Just as importantly, what will a Biden (or Trump) presidency mean for cryptocurrency investments? In this article, I'd like to make the case that cryptocurrency prices are largely determined by monetary and fiscal policy, which remains relatively stable regardless of the current president, and that cryptocurrency prices will continue to appreciate regardless of who eventually is declared the victor of the 2020 election.
General Theory of Crypto Prices
Before we can analyze what will happen to the price of Bitcoin or other cryptocurrencies in the aftermath of the 2020 election, I think it's important to consider what drives the price of cryptocurrency in the general sense. In general, cryptocurrencies are valued because they are everything that fiat currency is not. Cryptocurrencies have an algorithmically generated supply, so they resist inflation. The process of creating distributing and paying with cryptocurrencies is not subject to centralized authority, so many people view cryptocurrencies as a safe haven to protect them from reckless government policies and they are provably scarce.
Although cryptocurrencies have many other benefits over fiat, such as being permissionless and more transparent, I believe that one of the key drivers for cryptocurrency adoption as well as price appreciation is the fact that crypto currencies are seen by many as a haven and a refuge against the practices of financially irresponsible governments. Therefore, I predict that the more the government goes into debt and inflates its money supply, the more attractive cryptocurrencies will become to average citizens thus increasing the price.
Recent History and Precedent
Unfortunately, as we look back at recent history, it appears that debt and inflation continue to reach all time highs regardless of whether the president is a Democrat or a Republican. As you can see in this chart from the Federal Reserve, each successive administration dating back to President George W Bush leads the nation to a higher level of consumer prices as well as a higher level of national debt than each of their predecessors.
Whether the president promises “Hope and Change” or to “Make America Great Again” every administration in my working memory has left the nation with both higher debt and higher price level than when they began their term. Unfortunately, it appears that this trend is expected to continue, and the Congressional Budget Office, which is an independent agency that provides economic analysis for the government, predicts that this trend will continue and that by 2050, that U.S. debt to GDP ratio will have reached 200%.
Unfortunately, not just the national debt is increasing, but also the deficit, which is the rate at which we go into debt. According to this article, the Budget deficit in October of 2019 was 134 billion dollars, but by October 2020 the deficit was 284 billion dollars. While this is a net negative for the country as a whole, I believe that it is bullish for cryptos as it will drive more adoption as people look to protect themselves from rising prices, failed economic policies, and increasing federal debt.
Summary
All in all, I believe that there is clear historical precedent that the debt, deficit, and Consumer Price Index continue to increase regardless of which party has political power. While Biden and Trump may have differences as far as immigration policy, gun control, or any other number of social issues, I believe that their impact specifically with regards to cryptocurrencies will be relatively similar. Regardless of who becomes president, I believe that we will see a continued increase in the national debt, the federal deficit, and that inflation will continue to increase which will drive both cryptocurrency adoption and price increases of leading cryptocurrencies.
As always, markets can be very unpredictable and it's always best to do your own research. This is not intended to be financial advice, and is simply my speculation on the matter. Thanks for reading, and feel free to share your opinions in the comments
Thumbnail Image Credits:
https://www.chicagotribune.com/opinion/commentary/ct-trump-russia-guilty-20180222-story.html
https://www.nytimes.com/2019/01/06/us/politics/joe-biden-2020-president.html
References:
https://www.pgpf.org/the-current-federal-budget-deficit
https://www.cbo.gov/publication/56516
https://fred.stlouisfed.org/series/CPIAUCSL
https://fred.stlouisfed.org/series/GFDEBTN
