3 Bearish Cases for Bitcoin amid US Election Suspense

Bitcoin logged an overnight rally Tuesday as its price hit $14,000 for the second time in just three days.

The flagship cryptocurrency’s latest gains came amid then-ongoing voting round to elect the next US president. Earlier polls favored a win for Democratic nominee Joe Biden, a candidate that promised to boost government spendings to aid the US economy through the coronavirus pandemic.

The prospect of more US dollar liquidity pushed its bids lower. Bitcoin, which remains negatively correlated to the greenback, rose 6.38 percent to $14,081 as a result. But entering the Wednesday Asian session, the cryptocurrency started paring a portion of its intraday gains.

A sell-off near $14,081 pushed its prices to as low as $13,756. The plunge coincided with Donald Trump invalidating a smooth victory for Mr. Biden. The Republican candidate won central electoral states, including Texas, Ohio, and Florida, coming significantly closer to outrunning his Democratic rival.

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Donald Trump wins Texas and its 38 electoral votes, AP reports.

See TIME’s full #Election2020 coverage here https://t.co/kKuArndVl4 pic.twitter.com/GwulTyGFpI

— TIME (@TIME) November 4, 2020

At the time of this writing, Mr. Biden was leading Mr. Trump by 225-213. One needs 270 electoral college votes to become the next US president.

As uncertainty over the election looms, Bitcoin is looking more cautious in determining its next bias. Against its long-term bullish outlook, here are three reasons that could push the cryptocurrency lower in the coming sessions.

#1 A Contested Election Meets Bitcoin

Despite Mr. Trump hinting to run ahead of Mr. Biden, his potential loss in the running election season would not come with easy follow-ups.

The sitting US president has not ruled out the possibility of contesting the election should he lose. He has earlier raised concerns about vote fraud in the states that have adopted ‘voting by mail.’

If such a situation arises, it could lead to social unrest. Furthermore, it would further delay the second coronavirus stimulus package, an aid that Bitcoin bulls treat as the key to the next price pump.

According to Brett Steenbarger, a legendary trading psychologist, a contested election would send Bitcoin lower because of its growing exposure to the S&P 500.

“The last time U.S. election results were contested was in 2000. Between the election and the end of the year, the S&P 500 fell 7.8%,” he told Messari, adding:

“A stock market sell-off could trickle into “speculative investments” like bitcoin. Too many over-leveraged longs could liquidate, potentially leading to a similar crash in March.”

#2 Biden’s Tax Plan

The stock market may keep influencing Bitcoin even after a clear Biden win.

Investors fear that the Democrat’s capital gains tax plan on wealthy corporates – from 23.8 percent to 39.6 percent – would prove volatile for the stock market. That could lead to a sell-off on Wall Street, risking a bearish spillover to the Bitcoin market as traders sell the cryptocurrency to offset their losses.

#3 A Republican Senate

So far, the Democratic-led US Congress failed to pass the second coronavirus fiscal bill in the upper house of the Senate with a Republican-majority.

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The Joe Biden administration will have to win at least 51 seats in the Senate to prove its hegemony. If it happens, then the road to the next big stimulus will be without bumps. Otherwise, a “Red Sweep” scenario would push the bill back into the discussion mode, leading to further delays.

Such a scenario could prompt the Bitcoin price to head lower.