Politicalendorsements have always had an impact on financial markets especially inrecent years. For digital assets, the impact sends shock waves throughout theindustry since it is not yet fully matured, as such, any potential policychange could have a ripple effect. For forex markets, investors on the outsideare constantly looking to see what other global players are doing in theircountry to gauge how any policies could affect the country’s political powersor financial strength. Imagine for example you invest in a foreign currency andsuddenly the country is at war with another country. The political stability ofthat country is at risk and as such you and all other investors will mostlikely pull out your investment just to be safe.

How Political Endorsements Affect Cryptocurrency Prices

Sentimentslargely move cryptocurrency valuations, that is, attitudes or general feelingsinvestors have toward an asset. For example, if investors are optimistic, theyexpect that prices will rise and so will valuation. This is a bullishsentiment. On the other hand, if they are pessimistic, they expect prices tofall, which usually means they dump their assets. This is a bearish sentiment.So when a politician endorses a cryptocurrency either through a publicstatement or with a policy proposal, it is like having the government’sbacking, which often leads to a bullish sentiment. Similarly, if they criticizea digital asset, it triggers a massive sell-off.

Memecoins, for example, owe their success largely to social media hype andpolitical endorsements from people like Elon Musk. If Musk tweets about a memecoin, it could make it to the list of top meme coinsin a matter of hours. According to Bitcoinist, the best meme coins to invest inright now include Catslap and Mind of Pepe.

Perhapsthe most popular endorsement in recent history came from the president of ElSalvador in 2021 when he led the Bitcoin Law bill to be passed in the country.The bill made Bitcoin a legal tender, meaning it can be used to carry outformal transactions and has the government’s backing. The value of Bitcoin wentfrom around $31,000 in June 2021 when the bill was passed to around $52,000 inSeptember 2021 when it was officially adopted. This is the power of politicalendorsements on cryptocurrency valuation.

How Political Endorsements Affect Forex Markets

Theforex market is mostly affected by interest rates and monetary policies.Political endorsements tend to only cause short-term price movements inexchange rates. For example, if a senator proposes a bill that strengthenstrade deals that will lead to economic growth for the US, it will positivelyimpact the position of the US dollar in forex markets. Conversely, the sameapplies if a policy is introduced that could weaken the local currency.

If youlook at a country like Nigeria, 10 years ago the exchange rate was about 1 USD= 204 NGN. However, due to the country’s monetary policies that have led torising inflation, the Naira has weakened and today the average exchange rateis about 1,528 NGN to a dollar.

Anothercase study to consider is the case of Brexit and the British Pound (GBP). Whenkey government figures started endorsing the movement, it created a lot ofuncertainty in the forex markets resulting in a sharp decline in GBP value.Again, it could be something as simple as feelings (sentiments) that could makea value go up or down.

Conclusion

Everyday we see political figures make statements about one thing or another. Whencryptocurrency advocates come into positions of influence or make endorsementsabout anything that affects the strength of the local currency, it will have a ripple effect across the markets. Generally, financial markets are highly sensitive toannouncements and policies. As an investor, you should try to pay attention tocurrent affairs as much as possible so you are not caught off guard. And youshould develop strategies to use in case you find yourself in an uncertainposition.