Why is the Bitcoin rally cooling as Trump's return looms?

Bitcoin’s designation as a “Trump trade” is beginning to feel the pressure from broader global market shifts, spurred by the possibility of Donald Trump’s return to the White House.

With the Republican nominee leading Vice President Kamala Harris in prediction markets, bond yields, and the US dollar have jumped recently.

According to a Bloomberg report, investors are adjusting their bets, pulling back on expectations of looser monetary policy, as Trump’s pro-growth agenda could fuel an already strong US economy if he secures victory in the November 5 election.

This market shift has caused Bitcoin and stocks to fluctuate, as financial conditions tighten in response.

Bitcoin is facing its first weekly decline in three weeks. Although Trump has historically embraced the digital-asset industry, questions remain as to whether his broader economic agenda will negatively impact the cryptocurrency.

“Absolutely, yes, the selloff in stocks, higher US dollar, and higher yields all equal a tightening in financial conditions,” said Tony Sycamore, a market analyst at IG Australia Pty in the report.

He explained that the rapid pace of the tightening is creating pressure on risk assets like crypto.

Bitcoin’s performance under Trump remains uncertain

Bitcoin saw a 1% rise on Thursday, reaching $67,300, but its weekly decline still hovers around 2%.

Despite the recent dip, Bitcoin has surged by 60% this year, with a record high of $73,798 in March.

Demand for US spot bitcoin exchange-traded funds (ETFs) has been a key driver of the asset’s rally, but the market now faces uncertainty as financial conditions tighten.

Trump, in contrast to President Biden’s regulatory stance, has vowed to make the US the "crypto capital of the planet," appealing to crypto enthusiasts.

Democratic candidate Harris has taken a more cautious approach, advocating for a regulatory framework for the sector.

These contrasting positions highlight the differing impacts each candidate could have on the industry.

Election result to influence Bitcoin’s future?

The race between Trump and Harris is statistically tied in key swing states, according to a Bloomberg News/Morning Consult poll.

The tight margins indicate that final campaigning efforts could play a significant role in deciding the winner.

If Trump wins, bond yields may rise further, negatively impacting risk assets like Bitcoin.

Caroline Mauron, co-founder of Orbit Markets, noted, “The expected regulatory softening of a Trump administration toward the crypto industry should still be the more important factor,” despite potential market tightening.