Former Donald Trump chief of staff Mick Mulvaney said a Joe Biden presidency would create a “flurry” of regulations. Some economists also expressed concern that the Biden government will provoke a stock market crash.
This got many cryptanalysts thinking the impact of a sharp pullback in the stock markets on the price of Bitcoin (BTC).
During an interview on CNBC’s Squawk Box, Mulvaney said that Biden will be enforcing many regulations in a very short time. Explained::
“If Trump wins, you will see more of it. He set the parameters based on his attitude towards regulations. If Joe Biden wins, you will see an absolute deluge of regulations in a very short time.”
Skew data shows that Bitcoin has had a higher correlation with gold than it does with stocks in recent months. Hence, we could argue that a slowdown in stock markets could boost sentiment when buying Bitcoin.
The correlation between gold and bitcoin. Source: Skew
But as we could guess from March to April A bearish sentiment in the stock markets could dampen Bitcoin’s momentum.
Economists are also pessimistic
According to the finance professor at the University of Maryland, David Kass, an increase in the tax rate under a possible Biden government would result in lower profits. Over time, The decline in earnings could lead to a decline in the share price. which would lead to a stock market crash. Kass said:
“The increase in the tax rate will result in lower profits and likely a decline in the share price. That effect can be more than offset by a wider fiscal stimulus package approved by Congress and better trade relations with countries in Europe as well as China.”
Other studies show that A Biden presidency could have a tiny impact on the stock market trend.
According to the WSJ, historical data suggests that choosing Biden could allow the stock market to sustain an average annual profit of 10%. Ed Finn, WSJ Opinion Contributor, wrote:
“It is even possible for US investors to make annual stock gains of 15% or more during the Biden administration.”
However, There are two possible scenarios: where a decline in stocks is likely to affect the price of Bitcoin as well.
First, If this improves sentiment around safe assets like gold, it could increase the likelihood that BTC will see another uptrend.
Secondly, A decline in stocks could hurt gold and bitcoin just as much as it did in March. When this last scenario occurs, Most assets, with the exception of US Treasuries, are likely to be affected.
What is the most likely outcome for Bitcoin’s price?
Since the mood around the Biden presidency remains mixed on the part of the Americans, There is a high probability that it will not have such a significant impact on BTC.
When bitcoin enters 2021, like 2017, it will face the halving cycle. In 2016, it took BTC around 17 months to hit its all-time high of $ 20,000. If history repeats itself, I would describe the fourth quarter of 2021 as the period when we would possibly see a new high point for the world’s leading cryptocurrency.
Bitcoin price weekly chart. Source: Tradingview.com
Short term, Strategists predict a sell-off after Biden’s possible choice. The Assistant Dean of Strategy at Boston College, Aleksandar Tomic said:
“What I think is really bad for the stock market would be any kind of uncertainty: if there is any kind of instability after the elections, if they are controversial for a long period of time.”