2024 Election and Its Impact on the Crypto Ecosystem

Bittime - 2024 will be an interesting year because as many as 64 countries will hold elections simultaneously. Among these elections, the United States election has always been the center of world attention.

This is because the American dollar acts as a global reserve currency, so that political conditions and policies in the United States can influence markets and geopolitics globally.

Bitcoin in Elections

Bitcoin has only been around since 2009 so data regarding the correlation between Bitcoin and elections is still limited. However, with institutional adoption via ETFs, Bitcoin's performance is expected to be more correlated with the S&P 500 in the short term.

Interestingly, this year was dubbed the "Bitcoin Election" because Bitcoin became the main narrative in the election campaign.

Presidential candidates from South Korea, Argentina, and El Salvador have used the Bitcoin narrative and succeeded in winning elections. In fact, El Salvador has made Bitcoin a legal tender.

The Relationship between Bitcoin and American Elections

To understand the impact of elections on the Bitcoin market, it is important to understand election cycle theory.

This theory states that market performance follows a pattern based on the United States presidential election. This theory was created by Yale Hirsch, founder of Stock Trader's Almanac.

Electoral Cycle Theory

According to this theory, the stock market tends to perform weakest in the first year of a president's term, then begins to recover in the second year, peaks in the third year, and weakens in the fourth year.

During the first two years, the market tended to experience a bear market, while in the last two years, especially the third year, the market tended to experience a bull market.

This theory argues that the new president tends to fulfill the interests of those who support him in the first year, then begins to provide economic stimulus to support his re-election, so that the market becomes enthusiastic again.

Theory Validity

Research conducted by Charles Scott in 2016 analyzed data between 1933 and 2015.

From this research it was found that the average increase in the S&P 500 was 6.34%. In the third year of the president's term, the S&P 500 experienced a significant increase of 82% on an annual average. This data shows quite valid consistency.

Case Example of Biden and Trump

During the Biden administration, the market experienced a strong first year with a gain of 39.44%, driven by economic stimulus to fight the COVID-19 pandemic.

In the second year, the market experienced a bear market due to the tapering policy by the Fed. However, in the third year, the market again experienced an increase of 21.9%.

Meanwhile, during the Trump administration, the S&P 500 did not perform well in 2018 due to the trade war with China. However, the market was stimulated again in 2019 with QE4 and several stimuli in 2020 to combat COVID-19.

Grayscale Survey of the 2024 Election

A survey conducted by Grayscale found that one in three American voters are more interested in Bitcoin and crypto investments after the approval of the Bitcoin Spot ETF.

Additionally, one in four voters consider inflation to be the main problem in America today, and 47% of voters would include crypto in their investment portfolio.

Conclusion

2024 is an election year, in which Joe Biden is running for re-election. This also coincides with the global liquidity cycle which occurs once every 56 years, as well as the Fed's policy which tends to be dovish.

This cycle shows that the rise in Bitcoin prices is correlated with increased global liquidity and dovish Fed policy.

While data regarding the correlation between Bitcoin and elections is limited, historical trends show that Bitcoin tends to perform well one year before, during, and one year after an election.

However, like all cycles, the past does not determine the future, but it can be a useful clue.

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