(Bloomberg) -- Donald Trump’s potential return to the White House in November may bring about a weaker dollar, if the former US president gets his way. Some analysts reckon that would be a benefit for Bitcoin.
Concern around the dollar’s strength relative to currencies of trading partners like China and Japan has emerged as one of the Trump campaign’s key policy issues in recent weeks, leading the greenback to decline as Trump’s odds of winning the US election improved. A devaluation would support riskier assets like cryptocurrencies and gold, which have bounced under a strategy know as the Trump Trade.
“Bitcoin and crypto investors have been given a substantial lifeboat this year, powered by two significant engines,” said Fadi Aboualfa, head of research at Copper Technologies Ltd. The debut of exchange-traded funds tied directly to the cryptocurrency in January helped kick-start a new record high for Bitcoin this year, while more recently, the possibility of a Trump win has seen the token rally significantly.
But that’s less to do with Trump’s open promise to support the crypto industry, and more to do with economics, according to Aboualfa. Market expectations that the dollar will lose ground against other currencies, as it has done historically under a Republican administration, could mean that so-called haven and alternative assets are set to keep gaining.
“Haven or alternative assets might actually strengthen if we’re talking about an environment where a Trump administration could achieve some of the things that they’re talking about — reflationary policies, tariffs, a weaker dollar, wider budget deficits,” said Shaun Osborne, chief currency strategist at Scotiabank, who pointed to gold as another possible winner.
Like many of Trump’s policy proposals, his view on the dollar is a break with precedent. The US has traditionally supported a strong dollar, at least in words, with Treasury Secretary John Connally famously telling a group of central bankers in 1971 that “the dollar may be our currency, but it’s your problem.”
Growing Weaker
The dollar has largely traded inversely to Trump’s rising odds since President Joe Biden and Trump debated in June, creating a fertile breeding ground for his economic plans should he claim victory later this year. Following an interview this month with Bloomberg Businessweek in which Trump said the strength of the dollar was hurting US exports, the currency reached an almost two-month low.
“We have a big currency problem,” Trump said, stating that the relative weakness of Chinese and Japanese currencies against the dollar has provided those countries with an advantage. His new running mate, Ohio Senator JD Vance, has also previously campaigned for dollar devaluation.
But some of the policies on Trump’s wishlist could still threaten that outcome. Pro-growth tariffs, for example, would ordinarily strengthen the dollar, Osborne said, as well as pressure the Federal Reserve to raise interest rates. “A lot of these themes seem to be somewhat contradictory,” he added, echoing a consensus among Wall Street analysts.
The likelihood of a second Trump presidency took a hit on Sunday when Joe Biden dropped out of the race, lending his support to his Vice President Kamala Harris to take the Democratic nomination. While the dollar initially slipped as Biden bowed out, it’s expected to be the main beneficiary of a Harris campaign.
Whether alternative assets like Bitcoin will continue to strengthen if Harris gains momentum is less clear. One of the cryptocurrency’s most sizable recent rallies was following the failed assassination attempt against Trump earlier this month, a sign of just how much the token can be driven by quickly changing story lines.
“Short term, there are many other assets that will outperform and it’s always the short-term traders and investors that set the latest Bitcoin price,” said Noelle Acheson, author of the Crypto Is Macro Now newsletter. Large-scale selling by the German government caused major volatility for Bitcoin in recent weeks, and similar bumps in the road could be difficult for the asset to overcome — no matter what side is headed for Washington.
“This matters for Bitcoin because there are few assets that have such a diversity of narratives,” said Acheson. If history were to repeat itself and the result of the election was not respected, “that would be pretty disastrous.”
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