America’s dollar is whats linked to Bitcoin’s price, not its politics

Bitcoin’s price is tied to the U.S. dollar, not political events. Investors should focus more on the economy and dollar rather than election outcomes, according to crypto custodian Copper.

Bitcoin and the dollar

Election cycles in America are a showcase of economic states and policies, says Copper. The Great Financial Crisis helped Democrats gain office, and they returned to power after the COVID-19 pandemic.

Conversely, Republicans won in 2016 following a stock market recovery. This cycle has repeated over decades. When economies recover, investors move to riskier assets.

Republicans often take Washington with promises of lower taxes, deregulation, and favorable trade policies. The stock market, seen as a barometer of the economy’s health, shows different average annual returns under Democratic and Republican presidents. 

Democrats lead with 11.4%, while Republicans show 7%. These differences influence financial markets, particularly Bitcoin. However, the correlation between Bitcoin and equities under a Republican president is a simplistic view. 

Institutional investors know that Bitcoin often moves opposite to the dollar’s strength or weakness, influenced by party policies. Bitcoin just closed an 11-day streak of positive inflows, with over $2.3 billion in inflows, causing the market to rebound close to the $70,000 level. 

This jump of over 17% in two weeks followed the German government selling around 40,000 BTC, which had spooked the market. Since Bitcoin broke all-time high, ETF investors have bought an additional 70,000 coins, with the total now surpassing 900,000 BTC. 

Right now, Bitcoin is trading below the trendline since markets began buying in late January. In June, Copper’s calculations said that Bitcoin could hit the $100,000 mark if $17 billion in inflows were achieved, taking holdings above 1.05 million BTC. 

However, with the added German supply, figures now indicate 1.1 million BTC is needed, implying an additional $17.5 billion in inflows. At this year’s rate, Copper says it’d take us until like February 2025 to see that.

What to expect from Ethereum ETFs

Copper’s report says that Bitcoin ETF investors have seen a streak of inflows. Despite this, to reach the $100,000 mark, an additional $17.5 billion of inflows would be needed. Bitcoin’s MVRV Z-Score shows the score currently at 2.1.

This score moves faster than the market, appreciating or depreciating more quickly than Bitcoin’s price itself. Bitcoin ETFs have been a massive success. Investors have bought over 144,000 coins since January, worth around $8 billion. This is more than double the new supply from miners. 

With Ethereum turning inflationary in mid-April, similar dynamics are expected. Copper says investors need to buy at least $330 million monthly to maintain price stability.

Estimates for inflows into Ethereum ETFs vary a lot. Conservative estimates from JP Morgan suggest $3 billion by the end of the year, while optimistic projections go up to $45 billion within the first year. 

Even with lower estimates, Ethereum’s new supply would be about half of the projected inflows. It remains to be seen whether these funds will come from new liquidity or adjustments within existing crypto portfolios.