Bitcoin jumped on Tuesday as investors focused on an election that has already started causing an upward swing on Wall Street.

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Bitcoin logs gains on the US election. Source: TradingView.com

The benchmark cryptocurrency rebounded by as much as 3.89 percent heading into the US session, hitting an intraday high of $13,807. Its gains appeared as the sell-off in long-term US sovereign debts picked up momentum, reflecting investors’ growing appetite for cyclical risk-on assets.

The gains were also visible across the US stock market. The benchmark S&P 500 was up 1.90 percent as of New York noon. Meanwhile, the blue-chip Dow Jones and the tech-savvy Nasdaq Composite were also higher by 2.12 and 1.81 percent.

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S&P 500 continues its winning streak this week on renewed risk-on appetite. Source: SPX on TradingView.com

The upside sentiment came as Americans voted in the US presidential election with a huge turnout early morning. Polls showed Democratic nominee Joe Biden leading Republican incumbent Donald Trump, albeit facing tight competition in crucial battleground states.

Hong Li, the head of US equity quantitative strategy at Citigroup, told FT that investors favor odds of a blue-sweep. Should that happen, the market can anticipate a generous coronavirus stimulus package to shore up the battered US economy.

Mr. Biden has pledged to launch a significant infrastructural spending campaign to safeguard the US economy from the blow of the coronavirus pandemic.

Bitcoin Macro Fractal

An earlier call to aid the US market – in the form of a $2.2 trillion package signed by President Trump – helped the Bitcoin and the stock market rally higher – while turning the US dollar lower. Therefore, investors have started opening new long positions in the riskier assets based on the pro-Democratic polling outcomes.

Meanwhile, the dollar is down by 0.64 percent against foreign currencies.

Ty Young, Researcher at data analysis firm Messari, recalled the growing correlation between the S&P 500 and Bitcoin after the first relief package. He noted that a proportional relationship between the two markets could sustain as the next US administration announces a new aid.

“If previous statistics show validity on a weaker dollar, stimulus package passing, and an administration change, bitcoin could continue its bullish trajectory corresponding to the S&P 500,” he explained.

Potential Risks

The optimistic predictions also came with a pinch of warnings. One of the most significant potential issues that Bitcoin faces now is a contested election. Mr. Trump has not ruled out the possibility of not leaving the White House quietly. He fears election fraud as Americans gain the right to cast their votes by mail and drive-in ballots.

A scenario, as such, would create social unrest. It will end up delaying the stimulus by another month. As a result, the likelihood of Bitcoin losing a good portion of its gain will be higher.

“The last time U.S. election results were contested was in 2000,” added Mr. Young. “Between the election and the end of the year, the S&P 500 fell 7.8% […] 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.”

Bitcoin was trading at $13,770 at the time of this writing, up 1.53 percent into the Tuesday session.