US election – buy or sell Bitcoin?

Reddheads.com does not provide investment or trading advice. The following article resumes opinions from other sources about the possible effect of the US election on the price of Bitcoin and other assets. Readers are 100% responsible for their money and are advised to do their own due diligence.

There has been diverse speculation recently regarding factors that affect the price of Bitcoin. The common mainstream view is that the “devaluation” of the Chinese Yuan (a misnomer for the weakening of this currency against the US dollar) was responsible for the recent rally of the price of Bitcoin and that an impending decision by the Chinese government to restrict features open to Bitcoin traders on Chinese exchanges was responsible for the recent drop in price. For a fairly convincing debunking of these views (certainly the former; the latter remains to be seen but the argument is good) see the recent two-part series ZeroHedge Fakes Bitcoin Panic and China Bitcoin Panic Part II, on fintekneeks.com.

When it comes fundamental technical advances with Bitcoin, the launch of SegWit (a major update to Bitcoin Core that reduces the amount of space required by transactions in blocks, thus increasing the number of transactions the system can handle) is being seen by many as the beginning of the end of the long-running blocksize debate. For around a year the Bitcoin network has suffered recurring transaction delays as blocks reach their transaction capacity; the idea is that SegWit will provide breathing space (by roughly doubling block capacity) as well as the foundation (through other improvements brought by the update) for the ultimate solution to scalability: the Lightning Network.

But in practice it may not be quite as simple. In order to achieve full activation on the Bitcoin blockchain, SegWit-updated software requires support by 95% of the network hashrate (mining power), however some miners refuse to run the update, instead running Bitcoin software with various versions of the same alternative solution: a direct increase of the Bitcoin blocksize, something these miners regard as the critical first step to any scaling solution. The matter is further complicated by the economics of mining, as recently highlighted by an article on Coindesk: China’s Bitcoin Miners See Profit in a Bigger-Block Blockchain.

How long this stand-off continues before one side shows concessions to the other or before one side outmanoeuvres the other through tweaks to their respective solution, is anyone’s guess. What is perhaps a little more dependable is that while uncertainty on the matter continues, this uncertainty is reflected in the Bitcoin markets.

It seems safe to say that, for the following week at least, there is no end in sight when it comes to obsessing over China or debating about Bitcoin scalability. There is however one factor that will almost certainly have some effect on the price of Bitcoin, depending on an outcome which will become clear within the next 24 hours or so: the US presidential election.

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Up, down, left or right?

The common view is that there will be a tendency for the price of Bitcoin to go up if the election is won by Donald Trump, and for the price to go down if Hillary Clinton becomes president of the United States. This view has been reflected or implied over the past 24 hours in a couple of articles and news items:

Newsbtc.com

“A decisive Clinton victory is foreseen to be positive for US markets since this would be the scenario with the least amount of uncertainty while a Trump victory or a very close outcome could still keep risk-off moves on the table, possibly favoring bitcoin price.”

Forexminute.com

“Based on recent price action, the US dollar gains support on a potential victory by Democratic nominee Hillary Clinton. After all, this would mean that the incumbent political party would stay in the White House, ensuring better continuity and less uncertainty. On the other hand, a Trump victory could cause a ruckus in US markets since his brash rhetoric and political views could bring more uncertainty to the US and global economy.”

Some other articles say it all in their titles, such as How Hillary Clinton Seeks to End The Internet, Bitcoin and The Free World (cointelegraph.com).

Is there any wider viewpoint that backs up these opinions? Generally speaking, the Democrats remaining in government under Hillary Clinton is seen as the path of least uncertainty when it comes to politics and correspondingly, the markets. A win for Donald Trump and the Republicans is expected to bring uncertainty:

Bloomberg.com

“For now, it seems like many have nominated Bitcoin as their exit plan if the October surprise dealt by FBI Director James Comey turns into a November market shock.”

In times of uncertainty, safe-haven assets are seen as attractive investments. Gold, an asset which is often compared with Bitcoin (referred to by some as Gold 2.0), is the typical choice:

business-standard.com

“Gold markets thrive on uncertainty, it usually does before US elections. But this time around market experts feel uncertainty will continue and help gold prices if Trump wins. A Trump win is likely to bring in uncertainty till he comes clean on his policies.”

uk.investing.com

“Prices of the yellow metal sank to a one-week low of $1,278.60 on Monday as demand for safe-haven assets ebbed after the FBI said that no charges were warranted in the case of Democrat Hillary Clinton’s use of a private email server, lifting a cloud over her presidential campaign.”

Whatever the case may be, only a few hours remain until the situation is clarified and the markets react. But while some continue until the last minute to speculate regarding the possible effect of the outcome of the US election on Bitcoin, others are examining the longer view on blockchain technology. The outcome of the vote is not the point in the following article by Jeremy Quittner on fortune.com; instead the author examines the possibility that by 2020 voting itself will be “on-chain”:

This Is How We’ll Be Voting in 2020