How Will the U.S. Election Impact the Crypto Market?

The old saying "You may not be interested in politics, but politics is interested in you" rings completely true. Politics, through the machinery of government, has an undeniable influence on individuals, organizations, companies, and business activity. The crypto market is no exception.

The Bitcoin halving event, which occurs every four years, no longer has a significant impact on BTC's price. So how will the U.S. election affect the crypto market? Let's examine the historical impact of elections on traditional financial markets.

How Elections Impact Traditional Financial Markets

U.S. presidential elections still have a meaningful impact on short-term trends in American stock markets. Historically, markets experience notable volatility in the months leading up to an election. As a result, market participants tend to adopt a wait-and-see approach, deferring major decisions until election results are announced. Interestingly, U.S. stock markets typically perform better in the year following an election.

Curiously, elections also have a short-term effect on gold prices. Similar to stock markets, gold — as a safe-haven asset — sees increased demand during election cycles, resulting in a steady price climb in the months before the vote.

While U.S. presidential elections certainly influence the short-term performance of stocks and gold, their effect on the long-term price trajectories of these assets is minimal and does not produce any lasting anomalies in financial markets. Moreover, the election's impact on the dollar and macro trajectory is also limited in the near term.

This is because the long-term performance of financial markets is largely determined by economic fundamentals, such as inflation trends. The identity of the elected president is not a decisive factor.

Today, the crypto market — led by Bitcoin — has reached a multi-trillion-dollar valuation. It has evolved from a niche asset class into a mainstream one, shedding its previously marginalized status. Bitcoin is increasingly influenced by macro factors, including market liquidity, Federal Reserve rate hikes and cuts, and U.S. elections.

When the Federal Reserve cuts interest rates, triggering a surge in global capital liquidity, this has historically coincided with upward price trajectories for BTC. Macro liquidity continues to play a critical role in shaping the crypto market.

Furthermore, recent months have seen significant short-term volatility in the crypto market following releases of non-farm payroll and CPI data — both key indicators for Fed rate decisions. This underscores the growing correlation between BTC and the broader macro financial landscape.

As a crypto investor, the influence of macro factors simply cannot be ignored.

Crypto Companies' Ongoing Political Donations

Over the years, crypto companies have consistently made political contributions to U.S. politicians.

Back in May 2022, SBF (Sam Bankman-Fried) boldly declared he would donate between $100 million and $1 billion to the 2024 U.S. election cycle. His generosity had already begun well before 2024, with substantial contributions already made. By mid-October of that year, Bloomberg reported that crypto industry participants had contributed $84.1 million to U.S. politicians, with roughly 84% of that total coming from SBF and other FTX executives.

More recently, a Wall Street email revealed that SBF's family allegedly misappropriated more than $100 million in FTX customer funds to influence the 2022 elections. This disclosure triggered multiple legal proceedings. The email detailed the involvement of Joe Bankman, SBF's father, in crafting financial strategies tied to political donations.

Following the FTX collapse, political contributions from the crypto industry dried up. However, they surged again in the run-up to the 2024 election cycle.

As of May this year, crypto industry political donations for the 2024 U.S. election had reached $94 million — an all-time high. Coinbase and Ripple Labs contributed $20.5 million and $20 million, respectively.

The motivations behind crypto industry donations to U.S. elections can be broadly grouped into several factors:

1. Shaping the stance of presidential candidates and government officials on crypto, given the significant impact of policy regulation on the legality, tax structure, and development of the crypto industry.
2. Protecting their interests from potential harm arising from legislative or regulatory actions.
3. Enhancing brand awareness and driving positive public relations.

Mike Novogratz, CEO of Galaxy Digital, predicted that regardless of who wins the 2024 presidential election, crypto will receive favorable regulation in the U.S., as most American politicians tend to support innovation in the crypto space.

While donations primarily influence regulation at the policy level, how significant is the election's impact on the price trajectory of the broader crypto market?

Limited Long-Term Impact

From 2016 to 2020, the bull market cycle coincided with Republican Donald Trump's presidency. From 2020 to 2024, Democrat Joe Biden's presidency saw the bull market continue. The crypto market, led by BTC, saw strong growth during both administrations.

The chart below shows that from the election period through September, BTC's price fluctuated but still delivered positive returns, with the most significant gains occurring during Trump's first term.

The 2017 bull market cycle and the unlimited quantitative easing (QE) launched in 2020 in response to the COVID-19 pandemic injected a substantial amount of capital into the crypto market.

During his presidency, Trump mentioned Bitcoin and crypto on Twitter but never formally acknowledged their value.

Biden, during his term, maintained a broadly tolerant stance toward crypto. Following the FTX collapse, the U.S. Securities and Exchange Commission (SEC) ramped up its crackdown on the industry. Nevertheless, the U.S. remained a leader in crypto tech innovation and investment capital flows.

The 2021 bull market cycle and the SEC's approval of spot Bitcoin ETFs in early 2024 drove significant excitement and activity in the crypto market. As of September 11, net inflows into spot Bitcoin ETFs had reached $17 billion.

Based on market performance across the two previous cycles, the election of a Republican or Democratic president does not have a meaningful impact on the crypto market's long-term growth trajectory.

While the election's influence may be limited, factors such as technological advances within the industry and Federal Reserve meeting decisions remain the primary drivers shaping the long-term trajectory of the crypto market.

Significant Short-Term Impact

Despite limited long-term influence, elections do have a meaningful short-term impact on the crypto market.

On July 14, following an assassination attempt on then-candidate Trump, BTC rose 2%, breaking above $60,000. The following day, it surged an additional 6%, approaching $65,000, before entering a period of choppy price action.

On July 28, Trump's anticipated appearance at a Bitcoin conference triggered a short-term market rally, followed by a pullback as the market digested the initial enthusiasm. On July 29, Bitcoin fell from new highs above $70,000, beginning a downtrend that culminated in a panic sell-off in early August.

On August 23, when Robert F. Kennedy Jr. suspended his presidential campaign and endorsed Trump, Bitcoin surged from $60,000 to nearly $65,000, posting a single-day gain exceeding 6%.

Recent U.S. presidential candidate debates received a relatively muted market reaction, as neither Harris nor Trump mentioned crypto.

U.S. presidential Election Day traditionally falls on the first Tuesday of November, every four years — known simply as "Election Day." The next major milestone, therefore, is November 5. BTC is likely to see significant volatility once election results are announced.

Historically, periods of aggressive SEC enforcement that send markets lower tend to mark short-term bottom ranges. Once the U.S. presidency is decided and uncertainty clears, hesitant crypto investors who have been sitting on the sidelines tend to make bolder investment decisions.

The U.S. Election Propels Polymarket to the Top

No one predicted the explosive surge in prediction market popularity this year. Polymarket, as a betting platform, lets users wager real crypto directly on their chosen outcomes across a wide range of topics — from sports and culture to economics, crypto, and election results.

The U.S. presidential election, the most high-profile event of the year, is what drove Polymarket to its current level of prominence. The Trump assassination attempt, Biden's potential withdrawal, Harris entering the race, along with various statements and debates, have all fueled continuous swings in prediction odds.

Dune Analytics data shows that Polymarket's trading volume hit $472 million in August, setting a new record and representing a 20% increase month-over-month. Additionally, the platform's monthly active users (MAU) surpassed 63,000 — another all-time high, up 42% from the prior month. New user registrations in August reached 71,000, yet another record.

These three record-breaking metrics catapulted Polymarket to the top. The platform's election prediction data is regularly cited by Bloomberg, CNBC, and other major media outlets, drawing widespread public attention.

The founder of 1confirmation wrote a piece arguing that while discovering market truth is inherently difficult, Polymarket — by using real-money bets — provides a compelling gauge of genuine market sentiment. The market appears to be validating this, with news, culture, and sports markets expected to grow in popularity after the November election. Polymarket is perfectly suited for any environment where there's disagreement.

Polymarket's success story, fueled by its exposure during the U.S. election cycle, is a testament to the potential of crypto-native products.

Summary

The U.S. election will undoubtedly impact regulation and policy in the crypto industry, though sweeping changes are unlikely. The election will also have a catalytic effect on certain protocols like Polymarket. In terms of market performance, the long-term impact is minimal — but the election is likely to trigger significant short-term volatility around key events.