The recent bullish move in Bitcoin may not be due to speculation about the US election but rather market expectations of a weakening dollar.
According to a July 22 analysis by cryptocurrency custodian Copper, the increasing likelihood of former US President Donald Trump winning a second term in the November election has led to a price recovery. However, the move could be tied to “market expectations that the dollar will lose ground against other currencies, as it did under the Republican White House.”
Bitcoin price has increased more than 6% in the past 7 days, from about $63,500 on July 15 to about $68,000 at the time of writing.
The report notes that Bitcoin's market behavior often mirrors that of other major fiat currencies, rising in price when the US Dollar Index (DXY) falls. This trend was notable in 2017 and 2021 when BTC reached all-time highs at the same time the dollar weakened.
The dollar has fallen an average of 10% during Republican Presidents' tenures since 1969 - showing the dollar is weaker against other major currencies. In contrast, the dollar has grown an average of 8% during Democratic presidential years since 1969.
DXY index changes over management periods | Source: Copper
“Bitcoin's dynamics are more complicated because it tends to move in the opposite direction of dollar strength or weakness. Additionally, any administration that delivers growth could see investors return to more volatile asset classes,” Copper head of research Fadi Aboualfa noted.
According to Copper's analysis, the absolute strength of DXY is not what matters but the market's expectations of future performance:
“If markets continue to predict a Republican win this year, there could be an assumption of potential dollar weakness, especially considering it is currently trading at its highest level since 2019. 2002”.
DXY performance
From 2013 to 2016, under President Barack Obama's Democratic administration, DXY increased 25%. This upward move can be attributed to a number of factors, including the economic recovery from the 2008 financial crisis, generally improved economic conditions in the United States relative to other major economies, and Expectations are growing that the US Federal Reserve (Fed) will eventually start raising interest rates.
In contrast, from 2017 to 2020, under Donald Trump's Republican administration, DXY fell 7%. During that period, taxes were cut significantly, which initially boosted economic growth but also led to concerns about escalating fiscal deficits. Trade tensions and tariffs imposed on other countries also contribute to greater dollar volatility.
Since 2021, under the Biden administration, DXY has increased 14%, according to Copper's analysis. A combination of factors such as higher inflation expectations, the Fed's anti-inflation action by raising interest rates and global uncertainties have contributed to the rise in the greenback's price over the past few years.
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