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Good morning everyone,

We're 5 days away from the next Fed meeting, which will bring the first US interest rate cut in 4 years.

As the US Labour Department reported this week, the 12-month inflation rate fell to 2.5% in August, the lowest in 3.5 years.

Against the backdrop of subdued inflation, market participants expect a 25 basis points (0.25%) rate cut on 18 September. That's good news: a larger cut of, say, 50 basis points (0.50%) could be perceived as an emergency rate cut, spooking investors.

As rate cuts boost risk assets, global share markets have been trading on rate cut optimism for most of the year and are in all-time high territory. As of Thursday, the S&P 500 is less than 2% below its all-time high, as is the Dow. The Australian ASX200 is not even 1% off its all-time high.

But it is a different story in crypto-land. Bitcoin is down around 20% from its all-time high of US$73,000 in March.

If crypto is a risk asset that is forward-looking and sensitive to changes in the macro environment such as interest rate cuts, why is it not taking off and hitting new highs?

I hate to say it.

But it's politics, stupid.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

Also, this newsletter contains affiliate links. This means that I may receive a commission from them. But for Crypto Down Under, I only choose products I use myself and can recommend wholeheartedly. Don’t forget to do your own research.

1. Crypto is betting on Trump

Donald Trump and Kamala Harris took the stage this week for their first (and probably last) presidential debate.

I watched 60 minutes of the 90-minute debate.

(I had to switch off after an hour because the debate made me feel sick and anxious and worried about the future of humanity in general and the future of the US in particular, but alas, I digress...)

Kamala Harris smoked Donald Trump.

She started out nervous, but gained confidence as she spoke, was more on point in her messaging, and skilfully illustrated how her upbringing has shaped her political beliefs. She even successfully baited Donald Trump, a skill I didn't expect her to have.

Donald Trump, on the other hand, tried to dodge questions by deflecting and spreading misinformation and grew increasingly frustrated as the debate wore on.

The day after the debate, all the major polls showed that Kamala Harris had won.

As the debate unfolded and it became clear that Kamala Harris was going to beat Donald Trump, Bitcoin fell by almost 4%. (It's bounced back yesterday.)

The dip illustrates the crypto optimism that people have started to associate with Donald Trump.

US private asset management firm Bernstein even predicts that if Donald Trump wins the US election on 5 November, Bitcoin could reach US$90,000 by the fourth quarter.

But if Kamala Harris wins the election, the largest cryptocurrency by market cap could break its current floor and test the US$30,000-40,000 range, the report said.

2. People are missing the trend

Unfortunately, people get caught up in the false dichotomy that Donald Trump is good for crypto and Kamala Harris is bad for it.

Yes, Donald Trump has verbally embraced Bitcoin and crypto, promised to make America the crypto capital of the world, and included crypto in the 2024 Republican Party platform.

Kamala Harris has not only done none of the above. Under her watch as Vice President, US regulators like the Securities and Exchange Commission (SEC) even tried - unsuccessfully - to regulate the crypto industry into oblivion.

But people are missing the trend.

Democrats, including Kamala Harris, are shifting from an anti-crypto stance to a more pro-crypto stance. Continuing to be hostile to the crypto industry would create too big an opening for the Republicans and other jurisdictions to move ahead.

It's hard to believe, but even sleepy Europe has a regulatory framework for crypto.

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3. Looking beyond the false dilemma

I have very mixed feelings about the US presidential election.

Yes, I like that Donald Trump has embraced Bitcoin and crypto. But his idea to slap even more tariffs on imports from China and other countries goes against my free trade beliefs and will almost certainly lead to higher prices for US consumers. Ultimately, I think he is a disaster as a human being. We need leaders who lead with integrity, not with lies and a criminal record.

On the other hand, I'm not holding my breath for Kamala Harris to solve the structural problems facing the US economy, such as the spiraling national debt, the ballooning budget deficit, and declining housing affordability. In the debate, Kamala Harris announced that, if elected, she would provide US$25,000 in down payment assistance for first-time home buyers. But that's not a long-term plan to fix housing affordability. Throwing money at the problem will only make it worse in the long run.

At a higher level, I'm not sure either party or candidate understands the severity of the structural problems facing the US well enough to implement substantial change.

I have even more mixed feelings about the fact that probably only about 1 million people decide all this.

Yes, about 244 million Americans will be eligible to vote. But 99.5% of them won't make a difference because they'll vote the same way or not vote at all.

Only 6% of the people in 6 battleground states will make the difference between Donald Trump and Kamala Harris. It's wild.

But I digress again...

4. Why Bitcoin will succeed either way

I encourage you to look beyond the smoke and mirrors of politics and zoom out.

If Bitcoin is the hardest money ever invented - which is my thesis - it will succeed regardless of who is in the White House. It is that simple. It won't need to be embraced by any one politician.

In this context, it's helpful to remember that Bitcoin adoption is not optional, as Saifedean Ammous points out.

Bitcoin is not a shiny electronic gadget that catches your eye with clever marketing and slick advertising. It's financial gunpowder. You either use it or it will be used against you.

At this stage, the outcome of the presidential election looks like a toss-up.

The future of financial gunpowder, on the other hand, is certain. The hardest money will win. That's economic reality.

Have a great weekend, everyone!

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