JP Morgan: If Trump wins, Bitcoin and gold are expected to rise further

JP Morgan stated that if former President Trump wins the election next week, Bitcoin and gold may have additional upside potential.

JP Morgan analyst Nikolaos Panigirtzoglou mentioned in a report on Wednesday that retail investors have been leaning towards the "debasement trade," purchasing Bitcoin and gold exchange-traded funds (ETFs) ahead of the U.S. presidential election on November 5.

The "debasement trade" refers to profitable trades in the context of a weakening dollar and declining real bond yields, such as in non-yielding assets.

The analyst wrote, "Overall, to some extent, a Trump victory would not only encourage retail investors to buy risk assets but also further promote their acceptance of the 'debasement trade,' thus in the case of a Trump win, Bitcoin and gold prices may have more room for upward movement."

The competition between Republican candidate Trump and Democratic candidate Vice President Harris has been closely contested. Many investors are concerned about the state of government deficits, with both candidates promising to increase tax cuts. In fiscal year 2024, the U.S. government deficit grew by 8%, reaching $1.8 trillion.

Bitcoin and gold are viewed by many investors as tools to hedge against potential fiscal and monetary policies that are expected to jointly reduce the value of the dollar and drive up inflation.

Panigirtzoglou pointed out that spot Bitcoin ETFs attracted $1.3 billion in new investor funds in the first two days of this week, bringing total inflows for October to $4.4 billion, making it the third-largest month for net inflows since the launch of spot Bitcoin ETFs in January.

In another measure of retail investor "animal spirits," meme stocks and AI-related tokens have also outperformed the overall cryptocurrency market.

The concept of "animal spirits" was introduced by economist Keynes, emphasizing the impact of investor sentiment and psychological factors on the market. He believed that the stock market is driven by investor confidence and expectations. When investor confidence is high, the stock market typically performs well; when investor sentiment is low, the stock market may decline.

Meanwhile, Panigirtzoglou noted that based on the cumulative changes in open interest for CME Bitcoin futures, institutional investor activity seems to have been on pause for the past two weeks.

He pointed out that Bitcoin futures have become "quite overbought," and "vulnerabilities" may lie ahead. The situation for gold is similar, as retail investors continue to buy gold ETFs while trading activity in gold futures has stalled.