Bitcoin is the best crypto asset to buy until the US elects a new president.
That’s according to Quinn Thompson, founder of Lekker Capital, a hedge fund that specialises in using macroeconomics to invest in crypto.
“Out of the universe of tokens, Bitcoin carries both the most tangible upside potential as well as least downside,” Thompson told DL News.
Usually, Bitcoin is less volatile than its peers, and it cuts both ways. If Bitcoin goes up, other cryptocurrencies like Ether or Solana tend to go up more — and if Bitcoin goes down, those other coins will go down more.
But it’s been a pretty unusual year for crypto markets.
Fundamentals have markedly improved — Bitcoin and Ethereum now have spot exchange-traded funds, US politicians from both sides of the aisle are courting the industry, and the Federal Reserve has announced that it will cut interest rates at long last.
Despite that, though, Bitcoin is hovering at $56,400, the same price as in February. Solana, the great comeback story of the cycle, is just as bogged down at $135. And Ether is only up 2.2% since January 1.
A slew of supply issues have stirred headwinds for Bitcoin and the rest of the crypto market. The US and German government dumped their holdings, bankrupt crypto firms redeemed ETF shares, and Bitcoin miners sold a portion of their Bitcoin stash after the halving impacted their revenue.
For Thompson, investors were probably not paying enough attention to fundamentals, which weren’t great during Bitcoin’s run-up in the beginning of the year. And they’re making the same mistake now that macro conditions are much better.
“Crypto is such a momentum-based asset class,” Thompson said. “We always overshoot in both directions because of leverage, speculation, and pursuit of momentum.”
The return of inflation
When it comes to Bitcoin, though, Thompson favours the asset because no matter who wins in November, the US government isn’t likely to cut down on spending anytime soon.
The US budget deficit is projected to increase 18% next year to $2 trillion, the Congressional Budget Office reported in July.
Spending priorities include student loan relief, health care, resolving banking failures, as well as military aid to Ukraine and Israel.
The government finances that deficit by issuing more debt in the form of US Treasury bills. But if there isn’t enough demand for them — from, say, countries like Japan and China — the Federal Reserve ends up printing the money and buying the government debt itself, which leads to inflation.
That’s where Bitcoin comes in. Because it was designed in such a way that only 21 million Bitcoins can ever exist, the top cryptocurrency is often seen by investors as a hedge against monetary debasement.
Government spending “will keep a floor on inflation into the foreseeable future and bolster Bitcoin and gold prices on medium to longer term horizons,” Thompson said.
The fact that the Federal Reserve is on the verge of cutting rates — which will make money cheaper to borrow and increase the liquidity in the financial system — probably won’t help either.
“I do think inflation will become problematic again, and that will ultimately be the reason the Fed stops cutting,” Thompson said. “But based on their last hiking cycle, they waited as long as possible to raise rates again because of inflation.”
Trump win factor
Bitcoin could also end up benefitting hugely if former President Donald Trump gets another term.
Historically crypto-agnostic, Trump began making overtures to the crypto industry in May.
Since then, he has promised the creation of a Bitcoin strategic reserve, has met with Bitcoin mining executives, and made an appearance at the Bitcoin conference in Nashville, Tennessee, the biggest crypto event of the year.
And while a Trump win would likely be good news for the entire crypto industry, most of his rhetoric has centred on Bitcoin, Thompson noted.
“If Trump wins, there will be a number of digital assets that end up outperforming Bitcoin, but I see less appetite for market players to speculate on that outcome pre-election given the heightened uncertainty,” Thompson said.
The tremendously successful spot Bitcoin ETFs, launched in January, also affect the calculus.
“Bitcoin will benefit from massive inflows if Trump is victorious,” Thompson said. “But it’s also the most accepted and approved digital asset from a regulatory perspective already, so if Trump doesn’t win, it won’t be the end of the world for Bitcoin.”
Tom Carreras writes about markets for DL News. Got a tip about Bitcoin and the election? Reach out at tcarreras@dlnews.com
