"The Trump Trade" boosts Bitcoin, with one indicator unexpectedly turning negative!

If Trump returns to the White House in November, the dollar may weaken, some analysts believe this will be a positive for Bitcoin.

In recent weeks, one of the key policy issues the Trump campaign team has been focusing on is the strength of the dollar against currencies of trading partners. With the increasing possibility of Trump winning the U.S. election, the dollar has started to decline. Currency depreciation will support assets like cryptocurrencies and gold, which have rebounded under the strategy known as the "Trump trade."

Fadi Aboualfa, research director at Copper Technologies Ltd., stated, "Bitcoin and cryptocurrency investors have been given a huge lifeboat this year, driven by two important engines." The launch of a spot Bitcoin ETF in January helped Bitcoin hit new records this year; and recently, the increasing likelihood of a Trump victory has led to a significant rise in Bitcoin.

However, Aboualfa pointed out that this is more due to economic factors than Trump openly committing to support the cryptocurrency industry. The market expects the dollar to depreciate against other currencies, which means so-called safe-haven and alternative assets may continue to appreciate.

Shaun Osborne, Chief FX Strategist at Scotiabank, said, "If the Trump administration can deliver on what they say, including reflation, increasing tariffs, a weaker dollar, increasing budget deficits, etc., then safe-haven or alternative assets could actually strengthen." He highlighted gold as another potential winner.

Trump's view on the dollar breaks with precedent, as the U.S. has traditionally at least verbally supported a strong dollar. Former Treasury Secretary John Connally bluntly told a group of central bankers in 1971, "The dollar may be our currency, but it's your problem."

Since the June debate between Biden and Trump, the trend of the dollar has basically been inversely related to the probability of a Trump victory, providing favorable conditions for his potential economic plans. This month, in an interview, Trump stated that a strong dollar hurts U.S. exports, and subsequently the dollar hit a nearly two-month low.

Trump said, "We have a major currency problem." He pointed out that the weakness of currencies like the yen against the dollar provides advantages for the respective countries. His new running mate, JD Vance, has also called for a devaluation of the dollar.

However, some of the policies on Trump's wish list may still threaten this outcome. Osborne said, for example, tariffs that promote economic growth usually strengthen the dollar and put pressure on the Fed to raise interest rates. He added, "Many of Trump's policy goals seem to be contradictory."

When Harris was vying for the Democratic nomination, the possibility of Trump's re-election was dealt a blow. Although the dollar initially slipped when Biden dropped out of the presidential race, it is expected that the dollar will be a major beneficiary of Harris's campaign. If Harris's momentum strengthens, it is unclear whether alternative assets like Bitcoin will continue to strengthen. Crypto Is Macro Now newsletter author Noelle Acheson said, "In the short term, many other assets will perform well, and it is often short-term traders and investors who set the latest price of Bitcoin." The recent large-scale sell-off by the German government has caused significant fluctuations in Bitcoin, and regardless of who wins, similar blows may be difficult for Bitcoin to overcome.

In addition, data compiled by Bloomberg shows that Bitcoin and global stock markets are diverging. The 30-day correlation between Bitcoin and the MSCI World Index of Morgan Stanley Capital International is falling towards -0.20. A correlation reading of 1 indicates that assets move in sync, while -1 indicates an inverse relationship between assets. This is a rare phenomenon, as the indicator has typically been positive since 2020.

Sean McNulty, trading chief at Arbelos Markets, said, "Bitcoin now represents a Trump victory, but for US stocks, there are no clear winners and losers in the 'Trump trade'."