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Crypto community seeks more clarity from Harris, sentiment under Trump win would be stronger: Bernstein

The BlockThe Block2024/09/23 09:49
By:James Hunt

The crypto community still seeks more policy clarity and follow-through from Kamala Harris — despite positive comments over the weekend — according to analysts at Bernstein.Given the tumultuous history of the incumbent administration’s stance toward the industry, crypto market sentiment would be stronger under a Trump win, the analysts said.

With bitcoin up around 10% over the past week and ether showing relative strength with 17% gains, analysts at research and brokerage firm Bernstein outlined five key reasons for the rally — and what to expect moving forward.

One of those factors is potential bipartisan crypto support, with Democratic candidate and current Vice President Kamala Harris saying she'll encourage crypto business while protecting consumers at a Wall Street fundraiser over the weekend.

“This is the first explicit statement by Harris on crypto, where the word ‘digital assets’ was mentioned in a statement,” Gautam Chhugani, Mahika Sapra and Sanskar Chindalia wrote in a note to clients on Monday. “This is obviously in contrast to Trump’s overt ‘America as crypto capital’ stance with specific policy promises — friendly SEC chair, bitcoin national stockpile, support for Bitcoin BTC +1.43% mining in America, stablecoins regulation, etc. Regardless, the crypto community did feel some relief with both candidates signaling support.”

However, given the current administration’s “tumultuous” history in the space, including the “anti-crypto army” messaging of Democrat Senator Elizabeth Warren, cutting off crypto firms during the 2023 banking crisis and ongoing SEC litigation against several companies in the industry, the crypto community “seeks more policy clarity and follow through from the Harris side, to swing their political view,” the analysts said.

“We continue to believe, the crypto market sentiment under a Trump win would be stronger, since it would indicate a fresh policy start and likely broader regulatory support for DeFi/asset tokenization/NFTs, beyond bitcoin,” they added.

Harris currently leads Trump by 52% to 47%, according to the elections forecast market on the decentralized predictions platform Polymarket. National poll averages show Harris leading 48% to 46%, according to Bernstein.

ETF flows and loosening monetary policy

Regardless of the election outcome, with exchange-traded funds now live for Bitcoin and Ethereum ETH +3.03% , institutional momentum should continue for major crypto assets, the analysts noted, providing another driver for the current rally. The spot Bitcoin ETFs have remained net positive despite choppy price action over the past few months, adding a further $397.2 million in net inflows last week, with total net inflows now at $17.7 billion.

While struggling in comparison, with total net outflows of $608 million, the spot Ethereum ETF picture is more nuanced, with strong net inflows of $2.2 billion into the new ETFs currently overpowered by $2.8 billion worth of net outflows from Grayscale’s converted and higher-fee incumbent fund, ETHE.

“We believe, new approvals by wirehouses (recently Morgan Stanley went live) would continue and with some gestation period for advisors to solicit clients, we expect reacceleration of inflows,” the analysts said.

The U.S. Federal Reserve’s 50 basis point interest rate cut is another obvious factor, with bitcoin also reacting with a lag to gold's all-time highs, according to Chhugani, Sapra and Chindalia. Any further signal of looser monetary policy and a potentially weaker U.S. dollar is positive for bitcoin, they said. “In addition, with U.S fiscal debt scaling new highs at ~$35 trillion (adding $1 trillion debt every 100 days), bitcoin is seen as an alternative non-sovereign asset holding relative value (similar to gold), if the government continues its fiscal excess,” they added.

U.S. fiscal debt. Image: Bernstein.

Miners digest the halving and fears over bitcoin selling are ‘done’

The other two factors highlighted by the analysts were the bitcoin mining industry’s recovery post-halving and major bitcoin selling being “done.”

Surviving bitcoin miners have now weathered a quarter since April’s fourth halving event, with inefficient miners exiting the market and others capitulating some of their bitcoin inventory. After an initial decline, total network hash power is now back to around the 630 EH/s levels seen pre-halving, and briefly hit record levels earlier this month, indicating miner stability, the analysts said.

Fears over major bitcoin selling are also diminishing, with the German and U.S. governments completing their recent offloading and the market also absorbing around $8 billion in Mt. Gox distributions, Chhugani, Sapra and Chindalia said.

At the same time, MicroStrategy continued to tap the equity and convertible markets to raise over $2 billion to acquire more bitcoin in recent weeks, adding to the demand side of the equation.

Gautam Chhugani maintains long positions in various cryptocurrencies. Bernstein and its affiliates may receive compensation for investment banking services from MicroStrategy.


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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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