First Mover: As Bitcoiners Watch Dollar, Deutsche Bank Sees Trump Win Hurting Reserve Status

Add the U.S. presidential election to the growing list of volatility drivers as the bitcoin market enters the second half of 2020.

AccessTimeIconJul 6, 2020 at 11:31 a.m. UTC
Updated Sep 14, 2021 at 8:59 a.m. UTC

Bitcoiners, already rocked by this year's coronavirus-inflicted turbulence, face a fresh source of volatility as the market heads into the second half of 2020: the U.S. presidential election

According to Deutsche Bank, Germany's biggest lender, a reelection victory by President Donald Trump could threaten the U.S. dollar's century-long reign as the world's de facto reserve currency

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In a July 1 report, Deutsche Bank foreign-exchange analysts wrote that Trump, a Republican, has shaken up "policy orthodoxies and institutions" during this term. In contrast, former Vice President Joe Biden, the presumptive Democratic nominee, would likely pursue "policies that are more predictable and mainstream, with traditional U.S. alliances valued."

A Biden win could "help support the post-World War II financial architecture" including multilateral organizations such as the Group of Seven, International Monetary Fund, World Bank, World Trade Organization and North Atlantic Treaty Organization, according to Deutsche Bank.

That system propelled the U.S. dollar to a dominant role in global foreign-exchange markets. The dollar is the primary currency for international payments, a staple of central-bank reserves and the price denomination for commodities from gold to oil as well as cryptocurrencies like bitcoin.

"It is plausible that President Trump can do a great deal more damage to the U.S. reserve status in a second term, and as long as Biden is prudent with his choice of Treasury Secretary and provides multilateral global leadership, the USD's reserve status is in a safer pair of hands," the analysts wrote. 

The dollar's reserve status is a crucial factor in the bitcoin market because the cryptocurrency is seen by many investors as "portfolio insurance on broad-based currency debasement," as Delphi Digital analyst Kevin Kelly phrased it in a report last week. And dollar-linked tokens known as stablecoins have become an increasingly common means of moving money around in fast-growing digital-asset markets. 

Chart of U.S. Dollar Index by percentage returns
Chart of U.S. Dollar Index by percentage returns

The dollar has seen little erosion of its dominance so far in 2020, even as the Federal Reserve has injected about $3 trillion of freshly created money into global financial markets. That figure represents a 67% increase since Jan. 1 in the total amount of money previously created by the U.S. central bank. The U.S. Dollar Index, which tracks its value against a basket of major currencies including the euro, yen and British pound, is up 0.7% on the year.  

While a Trump win might be negative for the dollar in the long term, it's probably positive in the short term, according to Deutsche Bank. That's partly because Biden would be more likely to reverse the tax cuts that Trump pushed for during his term, and "fiscal flexibility in the short term is more constructive for the USD, in so much as fiscal capacity relieves some of the burden from monetary policy," the analysts wrote. 

Trump, who has made the economy a centerpiece of his presidency, has consistently pushed for stimulus over the past four years. He campaigned in 2016 on a promise of tax cuts and delivered in late 2017 with a $1.5 trillion fiscal package, pledging that the deal would produce annual increases in gross domestic product of 3%. As the promised growth failed to appear for two straight years, he pressed the Federal Reserve for interest rate cuts; the U.S. central bank obliged

This year, as the coronavirus ushered in a recession, Trump signed a $2 trillion relief bill into law, and his administration has applauded the economic benefits of the Fed’s trillions of dollars of emergency loans and monetary stimulus.

"I’m getting more and more happy with him," Trump said of Fed Chair Jerome Powell during an interview last week with Fox Business Network. "He’s had to liquefy a little bit. Let us liquefy. Let the economy, I mean – put out that money that you need.”

Patrick Tan, CEO of Novum Alpha, which offers digital-asset investment products, wrote last week in a Medium post there is currently "limited risk of the dollar losing its gravitational pull, but in the long run this becomes less clear." 

Trump has often stated his general preference for a weaker dollar, which tends to improve the competitiveness of U.S. exports, though often at the expense of higher domestic consumer prices. 

If the Deutsche Bank analysts are right, a Trump victory in November could mean the world eventually gets the weaker dollar he says he wants.

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BTC: Price: $9,200 (BPI) | 24-Hr High: $9,239 | 24-Hr Low: $8,919

Trend: Bitcoin is trading in the green near $9,200 on Monday. However, the immediate bias remains neutral with prices trapped in a narrow range of $8,800 to $9,300 for the tenth day running. 

The consolidation could end with a price breakout as bullish signs have emerged on technical charts. To start with, multiple daily candles with long lower wicks created over the last 10 days indicate bearish pressures are waning. 

A similar sentiment is being echoed by the higher lows on the daily chart MACD histogram, an indicator used to identify trend strength and trend changes. Meanwhile, the 14-day relative strength index (RSI) is looking to breach a two-month descending trendline in favor of the bulls. 

What’s more, the overall bullish structure of higher lows and higher highs created in the two months to mid-May is still valid. 

A range breakout, if confirmed, would open the doors for a rally to $10,000. Acceptance above that level would signal a resumption of the broader uptrend from lows under $4,000 observed in March. 

Alternatively, a break below $8,800 would expose the higher low support at $8,630 created on May 27. A close (midnight, UTC) below that level would invalidate the overall bullish trend and shift risk in favor of deeper losses. 

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