The Impact of Political Landscape on Cryptocurrency Markets

In Today’s Issue

Jason Leibowitz, the head of private wealth at Hashnote, delves into the current political landscape in the United States and its potential ramifications for the cryptocurrency industry. In our ‘Ask an Expert’ section, Connor Farley, CEO of Truvius, shares insights about Millennials’ growing interest in crypto investments and offers guidance on how financial advisors can effectively engage with this demographic.

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The Election Effect and Beyond: What’s Driving Crypto Markets?

A significant factor influencing the current cryptocurrency market is the upcoming presidential election in November. This critical race, along with several recent developments, has cultivated a bullish sentiment towards digital assets. The CoinDesk 20 Index, a trusted indicator of the broader crypto market performance, has experienced a rally in response to these pivotal catalysts. Investors can gain exposure to the CoinDesk 20 Index through private funds, providing a direct and efficient avenue into this rapidly expanding asset class.

Former President Donald Trump, the leading Republican nominee, has emerged as a vocal supporter of cryptocurrencies. During a keynote address at the Bitcoin 2024 conference in Nashville on July 27, he articulated his vision of transforming the U.S. into the global epicenter of crypto innovation. Trump announced plans to replace Securities and Exchange Commission Chairman Gary Gensler, who is often criticized for his anti-crypto policies—a promise that resonated strongly with the enthusiastic audience. Additionally, Trump expressed his intention to retain the approximately 200,000 bitcoins held by the U.S. government, describing it as a strategic reserve, thus demonstrating his commitment to integrating digital assets into national policy.

This pro-crypto perspective is mirrored by Trump’s running mate, JD Vance, who has significant personal investments in Bitcoin. Vance’s financial involvement underscores the campaign’s dedication to the digital asset sector, appealing to a voter base increasingly interested in cryptocurrencies.

Moreover, Senator Cynthia Lummis has introduced proposed legislation advocating for the U.S. government to acquire 1 million bitcoins for a minimum of 20 years. Although the feasibility of this proposal is uncertain, its potential to boost market confidence is clear, especially as it could ignite competition among nations to build strategic Bitcoin reserves, ultimately driving prices higher.

Crypto has transcended party lines, becoming a bipartisan topic of interest, with leaders from both sides increasingly supportive of the industry. Vice President Kamala Harris, viewed as the likely Democratic nominee following President Joe Biden’s exit from the race, has reportedly been engaging with crypto firms, signaling a shift towards a more favorable stance on digital assets. This bipartisan appeal is crucial, suggesting that, irrespective of the electoral outcome, the crypto market could benefit from conducive policies.

Additionally, 2024 marks a Bitcoin halving year, which has already reduced the supply of newly mined bitcoins, creating scarcity—a factor that historically supports price increases. The anticipated introduction of spot ETFs for Bitcoin and ether also presents a bullish signal. These ETFs are expected to draw new capital into the crypto market, attracting both institutional and retail investors. While ETFs provide exposure to price movements, private funds can offer additional yield opportunities through strategies like staking on long ETH positions, which ETFs cannot replicate.

Another contributing factor is the Federal Reserve’s expected rate cut later this year. Historically, a dovish Fed has been favorable for risk assets, including cryptocurrencies, and the anticipation of lower interest rates may spur further investments in the digital asset market.

Amidst this dynamic backdrop, the CoinDesk 20 Index effectively captures these bullish trends. Following Trump’s speech and the favorable policy signals, the Index surged to new heights not seen since the spring, even during a weekend when traditional markets were closed. The 24/7 nature of crypto trading allows for real-time pricing of significant developments, providing investors with immediate feedback on market sentiment. Given the fast-paced nature of crypto markets, engaging with experts in the field—rather than traditional finance professionals who may lack specialized knowledge—is essential for navigating this complex and rapidly evolving asset class.

The convergence of these factors creates a promising outlook for the crypto market. As the election draws nearer, the crypto landscape appears poised for continued expansion. The interplay of political support, institutional adoption, and favorable economic policies sets the stage for a potential upward trajectory. The recent market low on July 5th may have marked the bottom of the current cycle in this secular bull market, paving the way for sustained growth in the months to come.

– Jason Leibowitz, Head of Private Wealth, Hashnote

Ask an Expert

Q: Do my Millennial clients want crypto in their portfolios?

A: Absolutely! Not only are Millennials showing a keen interest in cryptocurrencies, but a recent FINRA report reveals that a staggering 57% of Millennial investors primarily invest in crypto, compared to 43% in mutual funds and 38% in individual stocks. This data underscores a generational conviction in the long-term growth potential of the digital asset class.

Q: What does this mean for advisors?

A: Millennials are on the brink of inheriting the largest generational wealth transfer in history—estimated at $84 trillion over the next 20 years. As digital assets become increasingly represented in Millennial portfolios, it is evident that adoption of these assets will accelerate alongside advancements in blockchain technology.

For advisors, it is imperative to familiarize themselves with digital assets, understand how to integrate crypto into an overall asset mix, identify accessible digital asset investment products, and navigate the compliance landscape to provide suitable crypto exposure for their clients.

Q: How should I advise on crypto for Millennials?

A: From an investment advisory perspective, it is insufficient to have a basic understanding of only Bitcoin and Ether. This narrow focus overlooks the broader fundamental value and diversification potential available across the various sectors within the digital asset class. Institutional investors are already seeking multi-asset, actively managed crypto investment products, recognizing the importance of a comprehensive approach.

Advisors should start by gaining knowledge of the broader crypto market, including the various sectors (such as DeFi, Smart Contracts, etc.) and market capitalization segments (mega-cap, large-cap, mid-cap, etc.). They should also identify easily accessible investment products, such as Separately Managed Accounts (SMAs) that provide diversified portfolios of multiple assets and encompass both passive and active strategies. These types of crypto investment products are supported by established portfolio theories seen in traditional investment strategies. By reducing single-asset concentration risk and catering to the varying risk and return preferences of investors, these diversified products can effectively meet the needs of Millennial clients.

– Connor Farley, CEO, Truvius

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