• Cryptocurrencies are on the back foot this week
• Bitcoin continues to outperform ethereum
• US and Japan elections to impact cryptocurrencies
• Bitcoin fails to break above $70k level

Mixed performance by the key cryptocurrencies

The cryptocurrency market is starting to feel the chills as the US election is less than a fortnight away. Actual voting is underway with more 25m Americans having already cast their votes, particularly in the crucial states that will determine the election’s outcome.

Bitcoin has had a decent run in October, benefiting from Trump's resurgence in the polls. It climbed aggressively higher, but it failed to trade above the $70k psychological level, prompting a small correction. The king of cryptos is around 5% in the green in October – the so-called Uptober – but the remaining main cryptocurrencies are having mixed performances.

Both solana and doge are recording double-digit gains, following an equally strong September, while ethereum continues to underperform. Interestingly, XRP from Ripple labs is suffering significant losses as the Securities & Exchange Commission’s (SEC) lawsuit against Ripple is a significant bearish factor. In the meantime, as a comparison, the S&P 500 index is around 1% lower in October and gold is almost unchanged in the same period.

US and Japan elections come into play

Trump’s pro-crypto stance and Harris’s intention to introduce a regulatory framework for the crypto market have allowed crypto hawks to openly talk about a significant price rise post November 5. Confirmation of this rhetoric could create a FOMO (fear of missing out) sentiment in the market, leading to further price gains for cryptocurrencies. On the other hand, this expectations’ build up is raising the possibility for an acute bearish reaction if cryptos do not deliver the price jump anticipated after the US election.

Interestingly, the Japanese general election will be held on October 27. Among other issues, cryptos have come into discussion with the leader of one of the smaller parties advocating for a significant tax reform. Currently, profits from crypto investments are subject to a tax rate of up to 55%, while ETFs are taxed based on the capital gains tax rate of about 20%. An adjustment in cryptos’ tax treatment and a possible rules-change allowing Japanese investment funds to invest in crypto-based products could really ignite cryptos’ demand in Japan.

Bitcoin’s correlation with key assets

Based on the three-month correlation, using daily returns, bitcoin continues to experience high correlation with US equities. Interestingly, at the same time, bitcoin also enjoys a strong correlation with gold, the highest level since June 2023, but not high enough for bitcoin to be universally recognized as a gold alternative. Correlation with euro/dollar, oil and the 10-year US Treasury are close to zero at this juncture.

The technical picture remains positive for bitcoin

Bitcoin’s failure to achieve a daily close above the $70k level has caused a small downleg. The king of cryptos is hovering above the 23.6% Fibonacci retracement of the January 23, 2024 - March 14, 2024 uptrend at $65,460. A break below this area could result in a more protracted move lower towards the busier $62,378-63,234 area, which is crucial from a sentiment perspective.

On the other hand, a move above $70k could open the door to a retest of the mid-June highs. The 2024 high at 73,800 would then be just a hair's breadth away.