Donald Trump’s pledge for a weaker US dollar if re-elected could provide tailwinds for Bitcoin and other cryptocurrencies, though analysts caution that the relationship is complex and subject to various economic factors.

According to a report from Bloomberg, the former president’s dollar policy marks a departure from the traditional strong dollar stance of past administrations, potentially creating a more favorable environment for alternative assets.

As Trump’s campaign has emphasized concerns about dollar strength relative to currencies like the Chinese yuan and Japanese yen, the sign market has, in turn, shown signs of responsiveness. Bitcoin has rallied significantly alongside improvements in Trump’s election odds, with some analysts attributing this partly to expectations of a weaker dollar under a potential Trump administration.

The report from Bloomberg cites Fadi Aboualfa, head of research at Copper Technologies, who notes that Bitcoin and crypto investors have benefited from two key drivers in 2024: the launch of spot Bitcoin ETFs in January and the possibility of a Trump win. However, he emphasized that the potential boost to Bitcoin stems more from broader economic implications than from Trump’s pro-crypto rhetoric.

“We have a big currency problem,” Trump said at the Republican National Convention, claiming that the relative weakness of Chinese and Japanese currencies has given those countries an “advantage.” Trump’s VP pick, JD Vance holds the same stance and has campaigned for dollar devaluation in the Senate.

Weak dollar, strong Bitcoin

The relationship between dollar weakness and Bitcoin’s performance is rooted in the cryptocurrency’s perceived role as a store of value and hedge against inflation. Shaun Osborne, chief currency strategist at Scotiabank, explained that Bitcoin, as an “alternative asset” might 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.”

However, the crypto market’s reaction to Trump’s policies could be more nuanced than a simple inverse relationship with the dollar. Some of Trump’s proposed economic measures, such as tariffs, could potentially strengthen the dollar and lead to higher interest rates – factors that have historically put pressure on crypto prices. This complexity underscores the challenges in predicting Bitcoin’s trajectory based solely on political developments.

Macroeconomics and narratives

According to an analysis from Noelle Acheson, diverse narratives surrounding Bitcoin that can influence its price. Short-term traders and investors often drive immediate price action, which can be affected by various factors beyond just currency policies. Recent volatility caused by large-scale selling from the German government serves as a reminder that Bitcoin remains susceptible to sudden market movements.

The crypto market’s sensitivity to political and economic developments was further illustrated by Bitcoin’s rally following a failed assassination attempt against Trump. This event demonstrated how quickly changing narratives can impact crypto prices, regardless of underlying economic fundamentals. Several Nobel economists have also warned that another Trump presidency could reignite inflation, which could adversely impact crypto markets.

As the US presidential race unfolds, market participants will likely scrutinize signals on monetary policy and currency valuations for their potential impact on Bitcoin and the wider crypto market. While a weaker dollar policy could create a supportive environment for crypto assets, the interplay of various economic factors and policy decisions means that the ultimate effect on Bitcoin’s performance remains uncertain.