(Kitco News) – The Presidential election in the U.S. is now less than a week away, and as investors debate which candidate will be better for financial markets, analysts at JPMorgan are leaning towards a better outcome for Bitcoin (BTC) and gold with a Donald Trump victory.
“Retail investors appear to be embracing the ‘debasement trade’ in an even stronger manner by buying Bitcoin and gold ETFs,” JPMorgan analysts led by managing director Nikolaos Panigirtzoglou wrote in a recent report. “The retail impulse is also seen in meme and AI tokens, the market cap of which has outperformed.”
Bitcoin’s recent rally above $73,000 led to a surge of inflows into U.S.-listed spot BTC exchange-traded funds (ETFs), with their combined assets under management increasing more than $2.27 billion over the past week, according to data provided by Farside Investors.
This was the third-largest month of Bitcoin ETF inflows since their launch in January, which the analysts said was fueled by retail interest in alternative assets as a hedge against currency debasement.
Institutional investors sat the rally out, however, with JPMorgan’s analysts saying they largely paused their Bitcoin futures activity in recent weeks according to their Bitcoin futures proxy based on cumulative open interest changes in CME Bitcoin futures contracts, adjusted daily.
“Bitcoin futures have become rather overbought, creating some vulnerability going forward,” the analysts said.
They also noted that gold ETFs have enjoyed sustained inflows, with retail investors being the driving force as institutional participation in gold futures saw a similar decline.
“Overall, to the extent a Trump win inspires retail investors to not only buy risk assets but to also further embrace the 'debasement trade', there could be additional upside for Bitcoin and gold prices in a Trump win scenario,” they concluded.
While Trump is widely seen as more positive for crypto, his potential re-election is likely to be less impactful for gold, according to David Morrison, Senior Market Analyst at Trade nation.
“Gold should continue to do its own thing. It is currently in a bull market and this is unlikely to change under either candidate,” he said in an analysis shared with Kitco Crypto. “Lower interest rates, and a falling dollar, can help support the gold price. But there’s no reason to believe that either Trump or Harris can have much influence over the Federal Reserve, even after Trump has said he will agitate for rate cuts.”
“Fed chair Jerome Powell still has two years left in his current term, so he should remain in place,” he added. “The President has no power to sack the Fed Chair, even if Trump makes life difficult for Mr Powell, as he tried to do during his last term as President.”
“The fundamentals behind the gold trade remain bullish, thanks to heightened geopolitical tensions and central bank purchases (that’s China et al, not the Fed, ECB or Bank of England),” Morrison said. “Retail demand has been largely absent so far in this rally. If that were ignited, further gains look likely.”
According to Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, “Gold’s trajectory into yearend is quite binary and contingent on both election outcomes (even then policy outcomes are still uncertain), US data, and the Fed outlook.”
“Put another way, the case for Gold at $2500 or $3000 (a 9/10% move in either direction) can be made,” she said. “The downside hinges on over positioning, sidelined length (producer & scrap selling), better-than-expected US data – and thus a hawkish Fed – which could deliver some deep punches.”
“The upside hinges on BAU (pace has decelerated after yesterday to a +$9/day putting $3000 in view within 30 days) as the market expects & continues to price in the unexpected with $3K both a psychological and market structure target,” she added.
For this reason, Shiels recommended that gold investors “Stay lightly and cautiously long, but with dry powder, as there will be volatile moves and tactical opportunities.”
Regarding Bitcoin, John Haar, Managing Director at Swan Bitcoin, said the top crypto will fare better with a Trump election.
“It appears that markets in general favor a Trump victory and are perhaps pricing in that expectation,” he said in a note to Kitco Crypto. “Specifically looking at Bitcoin, our view is that a Trump victory would likely push Bitcoin's price higher in the short term, while a Harris victory would likely drive Bitcoin's price lower in the short term.”
“In the medium and longer term, we believe that the outcome of this presidential race does not materially alter the trends supporting Bitcoin, which include continued government deficit spending, expansive Fed monetary policy, and ongoing Bitcoin adoption,” Haar added.
A similar outlook was provided by Chandra Duggirala, Founder of Tides Network.
“Trump’s recent endorsement of a national Bitcoin reserve raises the possibility of a historic shift, with the U.S. potentially adopting Bitcoin as part of its financial reserves,” he said in a note shared with Kitco Crypto. “Under a Harris administration, fiscal policies could follow the current administration’s trajectory, increasing regulatory scrutiny while expanding fiscal spending.”
In the event of a contested election, which many see as a strong possibility, Duggirala warned that “we could see a spike in market volatility.”
For that reason, Morrison said “The most important outcome for investors is that there is a clear, unambiguous winner on 6th November.”
“If there is any uncertainty over which candidate has won and should this lead to a drawn out legal dispute, or worse, then the market reaction is likely to be very negative,” he warned. “Back in 2000, when there was a month-long hiatus between the vote and the controversial outcome, ultimately forced by the Supreme Court, the S&P 500 lost 10%. Things could get far worse if history were to repeat.”
In the long term, the outlook for both Bitcoin and gold is positive regardless of who wins, as “the deficit is set to rise, either through Trump’s unfunded tax cuts, or Harris’s public spending,” Morrison stressed. “One thing is certain, National Debt will hit fresh record highs whoever wins.”
