The ‘Trump Trade’ Crypto Narrative is Overblown

Bitcoin has been soaring recently, as have Trump’s odds of winning this week’s U.S. presidential election, at least according to prediction markets like PredictIt and Polymarket.

Bitcoin recently crossed $73,000 and nearly touched its prior all-time high on the same day that Trump’ odds of winning the election on betting market Polymarket hit 69%, its highest level since the failed assassination attempt on the former president’s life in June.

Many pundits see Bitcoin’s recent strength as a sign that investors are positioning for a potential Trump victory. Others have gone further, arguing that recent strength in U.S. stocks and even the dollar are being driven by Trump wagers, as investors anticipate tax cuts will boost corporate profits, and protectionist trade policies could strengthen the greenback. Collectively, this is known as the “Trump Trade,” and if you read the papers, and more than a few sell-side reports, it’s all the rage!

It's a tidy (if unnerving) narrative, but is it even true?

To find out, we looked at the data.

Prediction markets were a good place to start. Polymarket and PredictIt allow bettors to wager on who will win the election. Until recently, the two candidates were in a dead heat, but, more recently, Trump’s odds have started to tick higher. So, we took the odds from the last two months from both prediction markets, averaged the two, and then performed a correlation analysis with other asset classes, securities and indices.

A score of 1 denotes a 100% correlation, and 0 means no correlation. A score of -1 means that two things are 100% inversely correlated.

Here’s what we found:

Unsurprisingly, Trump Media and Technology Group (DJT), owner of Truth Social, is more likely to do better when Trump’s odds of winning go up. Same with oil. And stocks have a positive 10% correlation with Trump’s odds. Bitcoin shows almost no correlation with either. So, the Trump Trade shows up in the data, but it’s pretty modest and probably massively overblown.

To be sure, prediction markets are but one data point. And there’s recent reporting from Fortunethat one-third of the activity on Polymarket is wash trading, designed to make them appear more popular than they really are, or as some critics argue, to “prop up” Trump’s odds. Not everyone is pricing in prediction market data, and given their newness, many may be discounting it. Still, as Bloomberg has reported recently, Wall Street is paying close attention and so must we.

The weak correlations and overblown narratives should give some comfort that we can stop fretting over the election as some huge catalyst for markets.

My personal view is that the election is short term negative and long term very positive, regardless of the outcome. In the short run, a Trump win could be a “buy the rumor…sell the news” event, given prices are near all time high, while a Harris win could lead to a knee jerk reaction as some traders just assume she’ll be worse for the asset class. In the long run, and regardless of who is president, Web3 adoption is accelerating as finance and other industries become digitized, while deficit spending will continue to create demand for other stores of value like bitcoin.

Who would be better for crypto – Harris or Trump?

I generally think people are overstating the impact of who’s in charge. That isn’t to say that governments do not impact new industries and markets.

In fact, there’s a lot a new administration could do, such as:

• Encourage Congress to pass industry-friendly legislation, such as a stablecoin bill
• Clear the way for more corporate issuers to debut on U.S. exchanges
• Reset relations between the SEC and the Web3 industry
• Reform financial services regulation to create more room for innovation
• Open energy markets to encourage Bitcoin miners to bring operations onshore.

I believe that much of this is sensible and even long overdue.

But I remain skeptical that Donald Trump will be the standard bearer of real, positive progress in this area. He has historically lacked the patience or even a sustained interest to see many priorities through and he is notorious for changing his mind when it’s no longer helpful politically.

His economic plan may also backfire on many businesses and industries including crypto. Business leaders may welcome a tax cut to 15% from 21%, but as right-leaning think-tank The Cato Institute has argued, his economic plan would exacerbate the deficit and send inflation soaring again.

Some have made the case that this kind of chaos is the point. Mark Cuban, the outspoken billionaire investor who supports Harris, believes VCs and tech people support Trump precisely because they believe his tax cuts, deficit spending plans and tariffs will cause inflation, sending bitcoin soaring.

This feels a bit cynical. Presidents simply don’t have that much influence. Plus, business can’t succeed in a world that is failing (though perhaps Bitcoin can).

Those who have worked closely with him have told often how Trump is easily swayed on issues.

Recent reporting suggests Trump’s main interest is in using crypto to make money, evidenced by the launch of his own DeFi project, World Liberty Financial (WLF). Even pro-Trumpers are nervous about WLF because they worry, with some justification, that it will undermine faith in the industry and make Trump’s recent pivot seem insincere.

Trump’s crypto position is a modern spin on the old adage "What's good for General Motors is good for America." Replace “General Motors” with “Trump, Inc.” and you're not far off from his view of the role of government.

Will his interest in crypto wane when it no longer suits him? This is a question many pro-crypto voters should consider carefully before heading to the polls.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.