A recent report from asset manager and crypto exchange-traded fund (ETF) issuer VanEck, led by Matthew Sigel and Nathan Frankovitz, examines Bitcoin’s fundamentals, adoption trends, and emerging volatility in the wake of the Federal Reserve’s interest rate cuts and the upcoming US presidential election.

Shift In Bitcoin Adoption

The report highlights that Bitcoin’s price has surged by 124% over the past year, significantly outperforming nearly all major asset classes. Within the cryptocurrency sector, Bitcoin’s dominance—measured by its market capitalization relative to the total crypto market—has increased by 15% year-over-year, reaching 56%.

Despite the firm’s strong price performance, it notes that the dynamics driving Bitcoin’s adoption have shifted. In 2023, Bitcoin experienced a 155% increase, reportedly fueled by “inscriptions,” which allow users to store media files on the blockchain and attract retail liquidity and trading fees.

However, the company finds that this trend waned, leading to a 93% decline in daily inscription transactions. Consequently, the decrease in on-chain activity has resulted in a drop in daily active addresses and transaction fees, suggesting that Bitcoin’s current price appreciation is driven more by its role as a store of value rather than retail transactions.

This shift suggests that institutional players increasingly use Bitcoin to store and transfer value. Coinciding with this trend, Bitcoin-related equities have seen an 87% increase in market capitalization, reflecting the growing adoption of Bitcoin as an investment vehicle.

Fed Rate Cuts And Harris-Trump’s Diverging Paths

Looking ahead, VanEck asserts that the interplay between the Federal Reserve’s monetary policy and the political landscape will profoundly impact BTC and the broader digital asset market.

Suppose the Fed continues to lower interest rates in response to economic challenges. In that case, the firm anticipates this could create a favorable environment for risk assets such as BTC, attracting investors seeking higher yields.

The upcoming US presidential election also presents a complex picture of Bitcoin’s future. Both potential administrations, under current Vice President Kamala Harris or former President Donald Trump, are expected to maintain or even accelerate fiscal spending, which could result in further quantitative easing.

This monetary policy, aimed at stimulating the economy, may inadvertently create a favorable environment for risk-on assets like Bitcoin. However, the impact could dampen investor confidence if either administration adopts anti-business policies.

Should Kamala Harris retain Gary Gensler as Securities and Exchange Commission (SEC) Chair, or align closely with the Elizabeth Warren wing of the Democratic Party, the asset manager predicts that the digital asset sector may face a tightening regulatory framework.

Despite these potential challenges, the asset manager argues that a Harris presidency could benefit Bitcoin in the long run. The reasoning is that a more regulated environment may bring greater clarity and legitimacy to the cryptocurrency space.

Conversely, a potential Donald Trump presidency will likely favor a more deregulated environment, which the firm believes could benefit the entire crypto ecosystem.

Regardless of who wins the presidency, the firm asserts that “the overarching trend” of escalating budget deficits and rising national debt will likely continue. Such conditions typically weaken the US dollar, creating a macroeconomic landscape in which BTC has historically thrived.