The price of Bitcoin (BTC) rose 2% in just 30 minutes, just as the US stock market rang the opening bell on Nov. 3. During the pre-market, the Dow Jones rose more than 350 points as US election day caused massive volatility.
The four reasons that have likely led to an upward trend in Bitcoin in such a short period of time are the election, an increase in stocks, negative funding and a rising currency outflow.
Elections lead to volatility
The US elections are today, but the outcome is not a foregone conclusion. Polls suggest that Joe Biden has one lead in great swing states.
The election is positive for Bitcoin for two reasons. First, a Biden or Trump win would benefit BTC in the short term, according to industry figures.
Tyler Winklevoss, the CEO of Bitcoin exchange Gemini, said:
“Both political parties are addicted to the Fed’s money printer, so no matter who wins the election, the only real long-term winner is #Bitcoin.”
Tom Lee from Fundstrat Global Advisors said stocks can go up 10% with a Biden win. In that case, risky assets would likely rise, ultimately benefiting Bitcoin. But if Trump wins, Lee said stocks could see an even bigger increase of 15% to 17%.
Meanwhile Goldman Sachs issued a note earlier this month suggesting that “a blue wave would likely prompt us to update our forecasts”. While experts are divided on the potential impact of the election on the stock market, it seems both scenarios would be beneficial for BTC by the end of the year.
The recovery of the US stock market coincides with the recovery of the BTC
When the Dow Jones saw a 350 point rise in the pre-market, the BTC price rose from about $ 13,500 to $ 13,730 within 30 minutes.
While Bitcoin has shown a declining correlation with US stocks in recent weeks, BTC and stocks are likely to increase simultaneously during an uptrend. Although Bitcoin is seen as a store of value, both BTC and stocks are still risky assets.
A rising stock market could mean markets are ambivalent about the eventual winner of the election.
Short sellers caught off guard
When Bitcoin’s abrupt rise happened, the funding rate of BTC futures on Binance Futures was below 0%.
Cryptocurrency futures exchanges implement a mechanism called ‘financing’ that stimulates the minority of the market. If the number of short sellers exceeds the number of buyers or long holders, sellers must pay buyer’s fees every eight hours.
But when the price of Bitcoin rises and there is also an additional incentive to lung or buy BTC, a short squeeze can occur. Considering that BTC was up 2% in less than an hour, the dominant cryptocurrency saw a big short push.
The outflow of exchanges is increasing
According to data from CryptoQuant, an on-chain market analysis company, this year’s exchange outflows recorded the largest peak at around 30,000 BTC.
Traders deposit Bitcoin on exchanges when they want to sell their holdings. Thus, when capital flows out of exchanges, it means that traders, whales and private investors plan to hold their BTC holdings for an extended period of time.
A combination of short-term tightness, election uncertainty, an upward trend in the stock market and rising stock market outflows contributed to BTC’s sudden price surge.