How Will US Stimulus Rejections Impact Crypto Markets?
With the US election fast approaching, Donald Trump has gone into overdrive as he attempts to overturn a seemingly significant deficit in the polls. Most recently, he has decided to end ongoing stimulus talks with the Democrats, which had initially proposed an economic rescue package of $2.2 trillion.
The market reaction here was strong, and inherently negative for riskier assets and stocks, while commodities declined and many indexes fell to striking session lows.
Interestingly, gold prices also went into freefall after the decision of President Trump, causing many to suggest that Bitcoin and crypto markets may be similarly affected. This is possible given the increased correlation between these two assets in recent times, but should we expect this to unfold in the near-term?
How will Stimulus Rejections Impact the Crypto Marketplace?
Of course, the extent of the market decline is curbed by the fact that the fiscal stimulus is likely to happen at some point during Q4, while the fact that Joe Biden is consistently ahead in the polls reinforces the idea that quantitative easing measures will be in place by early 2021 at the latest.
This is also contributing to a decline in the value of gold, but overall there remains a bullish outlook for the financial markets and an array of popular asset classes.
Interestingly, the same principle cannot be applied to Bitcoin, particularly if we study the fallout from the first stimulus package issued at the beginning of Q2. This involved the award of $1,200 cheques to citizens in April, in order to stave off the initial socio-economic impact of Covid-19.
More specifically, the data aggregation company Envestnet Yodlee found that a number of Americans had used their stimulus checks to invest in stocks, while the CEO of Coinbase shared similar data suggesting that individuals were also buying Bitcoin with their cheques.
Certainly, the percentage of deposits equal to $1,200 spiked significantly after April, from 0.1% to 0.4%. This represents a near four-fold increase, and one that triggered widespread volatility in the market and pushed the asset to brand new heights.
What’s the Future Outlook for Bitcoin Following the Recent Developments?
Clearly, there’s a correlation between the coronavirus and people re-engaging with their money, and there’s no doubt that the rush to invest in Bitcoin had a significant impact on the asset’s price.
However, while the recent decision of Trump to end stimulus negotiations may seem counterintuitive to further Bitcoin growth, it’s important to note that the most recent proposals didn’t include another round of stimulus cheques.
According to Edward Moya from Oanda, this could prove to be positive news for Bitcoin and the aforementioned ‘risky’ assets referenced at the beginning of the piece.
The reason for this is simple; as the market remains optimistic that subsequent negotiations will be successful and passed with individual stimulus cheques included. This could create a further rush to market, as the demand for Bitcoin continues to exceed its finite supply and create significant selling pressure across the board.
The election of Joe Biden would send market sentiment soaring even higher, especially when you consider that the stimulus cheques have a relatively modest cumulative value of just $300 billion.
With this in mind, Bitcoin holders and so-called ‘whales’ should prime themselves for a mass sell-off in the near-term, with demand likely to peak in the fourth and final quarter of 2020.