Week by numbers
The past week has seen strong upward movement in the cryptocurrency market. The price of Bitcoin, the largest cryptocurrency, rose by about eight percent, while Ether, the second-largest cryptocurrency, gained around four percent. The combined market cap of the rest of the cryptocurrency market (excluding major stablecoins) increased by approximately one percent.
Bitcoin’s sharp rally brought its price to a high of around $73,600, just under half a percent from its all-time high seen in March 2024.
Due to Bitcoin’s stronger performance relative to the rest of the market, Bitcoin’s dominance rose by about two percent (around 1.5 percentage points), surpassing the 60 percent mark. Meanwhile, the ETH/BTC ratio continued to decline, dropping nearly four percent over the week.
Although it was a notably positive week for Bitcoin, the alt-coin market saw both sharp weekly gains and declines. Among tokens in the Kvarn X trading service, the top weekly gainers included meme coin DOGE (+25%), Raydium’s RAY (+16%), and MKR (+16%). On the downside, Celestia’s TIA token fell by 23%, followed by Arweave’s AR (-10%) and Gala Games’ GALA token (-8%).
Market Commentary
In last week’s Kvarn Pulse, we provided an assessment of the market situation, noting:
“This week’s stock market developments may be suggesting that it might soon reach (or have already reached) a local top."
Thus far, it appears that our assessment may be at least partially correct. The S&P 500 index hasn’t reached new highs in two weeks.
The Nasdaq Composite index, however, has continued to rise, although signs of a slowdown are evident in the stalling of the Relative Strength Index (RSI).
In European stocks, declines have been notably steep.
Given the modest development in the stock market, it is interesting to note Bitcoin’s impressive rally. Over the past week, Bitcoin’s price has risen about eight percent and around 20 percent over three weeks, nearing an all-time high (approximately $73,800).
What could explain Bitcoin’s strong price trend without clear stock market support?
While the exact reason is hard to pinpoint, our hypothesis is that the upcoming U.S. presidential election could be influencing Bitcoin’s price surge. Let’s examine this further.
Crypto Market Watches U.S. Presidential Election
The most anticipated event for the stock and cryptocurrency markets next week is the upcoming United States presidential election.
The election winner is expected to impact not only U.S. fiscal policy and, consequently, the financial markets but also regulations concerning cryptocurrencies and blockchain technology.
The general consensus in the crypto sector is that Donald Trump’s election would be more favorable for the crypto industry, as his administration is expected to support a more favorable regulatory environment, based on his statements about cryptocurrencies.
The potential impact of a Kamala Harris victory on the crypto sector is more challenging to predict, as she has rarely commented on the issue. The prevailing assumption is that Harris’s administration might follow the current Democrat President Joe Biden’s approach, which many perceive as crypto-hostile.
Optimists believe that under Harris, the stance toward the crypto industry might be friendlier than under Biden. Still, there’s little actual evidence to support Harris’s position on the issue. Thus, there is nearly unanimous agreement that Donald Trump’s election is seen as the more favorable outcome for the crypto sector.
Donald Trump’s support in opinion polls has grown significantly in October. Betting platform Polymarket also saw Trump become the favorite to win the election in early October.
Around the same time, the cryptocurrency market began to show sharp gains.
It is possible that the markets have already priced in the increased likelihood of a Trump victory into Bitcoin’s price.
To what extent Bitcoin’s rise can be attributed to Trump’s increased election odds is challenging to verify. However, during the campaign, some signs have suggested Trump’s actions may have an impact on Bitcoin’s price. For example, we saw a Bitcoin price spike separate from the stock market in July.
In mid-July 2024, the stock market turned sharply downward. Initially, it appeared that the crypto market would follow suit. Yet, by the end of July, an unusual situation emerged: stock prices fell, but Bitcoin’s price kept rising, hitting a new local high of $70,000.
Finding a clear explanation for this atypical phenomenon was difficult. A plausible hypothesis for Bitcoin’s surprising rise was Donald Trump’s appearance at the annual Bitcoin Conference in Nashville on July 27, 2024. In his speech, the presidential candidate expressed positive views on the crypto sector and its advancement in the United States. A reasonable interpretation could be that crypto investors welcomed these remarks, boosting cryptocurrency prices without stock market support.
This is only an anecdote, but we don’t rule out the possibility that Trump’s election likelihood and possible victory could have a clear impact on the crypto market.
What reactions can we expect from the crypto market post-election?
In the investment world, it is commonly said that markets love certainty and hate uncertainty. By this rule, resolving a major uncertainty factor, like a close presidential election result, could bring clarity to the market, reducing the need for caution.
This rule is likely very often valid. However, the crypto market’s surge to the brink of an all-time high just before a historically tight presidential election raises the question of whether this heuristic is appropriate here. Markets currently appear relatively unconcerned with election-related uncertainty. Therefore, we don’t necessarily expect a positive price reaction once the election winner is determined.
If recent price increases have indeed been influenced by expectations of a Trump victory, it seems plausible that a Kamala Harris win might be an immediate “cold shower” for the crypto market, potentially pushing crypto prices down.
In the case of a Trump victory, the situation is harder to predict. Will we see a typical “buy the rumor, sell the news” dip, or a market euphoria driven by general optimism within the crypto sector? Both scenarios are conceivable.
It’s clear that the U.S. presidential election is associated with significant uncertainties regarding the winner and the and the overall societal reactions to the outcome. Given these uncertainties, we believe making strong market predictions would be somewhat unwise. The best approach for a crypto investor as the election nears is to stay alert and prepared to react to potentially strong market responses.
Kvarn Pulse will closely monitor the situation and provide updates next week, so stay tuned!
Ideas for Building a Crypto Portfolio
If you’re wondering how to build a crypto portfolio or get started in crypto investing, this section offers examples of themes around which you could begin building a portfolio. However, please note that nothing in this newsletter constitutes financial advice or should be interpreted as an encouragement to make investment decisions.
Theme Idea 1: Category Leaders
If an investor lacks the knowledge to assess which crypto sectors to prioritize, a relatively straightforward approach is to build a crypto portfolio from the largest tokens in each category. Correlations within categories are generally quite strong, so holding the largest token in a category provides good exposure to that category’s overall development.
Since category leaders tend to have the largest market caps, they are also often less volatile, which may help with adjusting to the inherently high volatility of the crypto market. On the other hand, it need to be noted that the largest tokens by market cap may not necessarily offer the best returns within their category either.
An example of a portfolio based on category leaders could include:
- Bitcoin (BTC) (category leader in payment tokens)
- Ether (ETH) (category leader in modular smart contract protocols)
- Solana (SOL) (category leader in monolithic smart contract protocols)
- Uniswap (UNI) (category leader in decentralized finance (DeFi))
You’ll find more theme ideas for building a portfolio in future Pulse newsletters!
The material contained in the Kvarn Pulse is produced solely for the purpose of marketing communication. Any information conveyed through Kvarn Pulse should not be construed as an offer or an invitation to make any purchase or sale decisions, or as an encouragement to make investment decisions about any investment object. Copying or borrowing the content of the newsletter without Kvarn's express permission is prohibited. The information presented in the newsletter pertains to the situation prevailing at the time of writing, and the information may or may not have changed. Kvarn Capital Oy does not guarantee the accuracy or completeness of the information contained in the newsletter or referred to in the newsletter.
