The original text is from Grayscale Research
Compiled by Odaily Planet Daily Golem（@web3_golem）
Key Highlights:
With increasing market focus on the U.S. election, Bit saw an uptick in October. Polls show a tight race for the White House, but changes in financial assets and implied odds from prediction markets suggest investors now see a higher chance of a Trump victory.
Bit exchange-traded products (ETPs) saw significant net inflows this month, though some of the new demand may reflect hedge fund basis trades (where they go long Bit ETPs and short Bit futures).
The convergence of crypto and AI technologies continues to have far-reaching implications, including autonomous chatbots promoting their own MEME coins. While it's easy to dismiss these projects as novelties, they demonstrate how blockchain can serve as an effective intermediary of economic value between humans, AI agents, and networked physical devices.
October Markets Anticipate a Trump Election Victory
U.S. voters will head to the polls on Tuesday, November 5th, in an election expected to have major implications for the digital asset industry. While polls show a tight race for the White House, investor expectations appear to have shifted towards a victory for former President Trump last month. For example, at the end of September, odds on the blockchain-based prediction market Polymarket showed Vice President Harris slightly ahead. However, by the end of October, Polymarket's presidential election market implied a 65% chance of a Trump win (Chart 1). Prediction markets are not infallible, and Harris could still win, but the shift in investor expectations towards a Trump victory seems to have driven asset market gains last month.
Chart 1: Prediction Markets Show Higher Odds of a Trump Election Victory
Whether financial markets are anticipating a higher likelihood of a Trump victory can only be inferred indirectly, but Grayscale Research believes October's cross-asset returns are consistent with a "Trump trade" (Chart 2). From a macro perspective, a stronger dollar, weaker renminbi, perhaps reflecting heightened awareness of tariff risks. Likewise, rising bond yields (falling bond prices), and rising gold prices may reflect expectations of higher budget deficits and inflation during a Trump presidency. Bit gained 9.6% this month, one of the better risk-adjusted performing assets. Trump's enthusiasm for Bit and crypto, so Bit's price rise may reflect market expectations of a regulatory environment supportive of Bit under a Trump administration. Additionally, like gold, Bit may be responding to potential macro policy changes during a Trump presidency.
Chart 2: Bit was one of the better performing assets in October
The U.S. election outcome could have significant implications for the digital asset industry. The next president and Congress may enact crypto-specific legislation and could alter tax and spending policies impacting broader financial markets. Grayscale Research believes that given the Senate's role in confirming presidential appointments to key regulatory bodies like the SEC and CFTC, changes in Senate control may be particularly relevant for crypto.
However, at the voter level, data suggests crypto is a bipartisan issue, with a slightly higher proportion of Democrats holding Bit than Republicans. Additionally, the specific candidates from both parties have expressed support for crypto innovation. Regardless of which party is in power, Grayscale Research believes comprehensive bipartisan legislation may be the best long-term solution for the U.S. digital asset industry.
Bit Arbitrage Trades Weaken Impact of Spot Bit ETP Net Inflows on Price
Demand for U.S.-listed spot Bit exchange-traded products (ETPs) increased in October. As of October 31st, net inflows totaled $5.3 billion, up from $1.3 billion in September, the highest level since February. Total net inflows into U.S. ETPs since their launch in January have exceeded $24.2 billion, representing around 5% of Bit's total supply.
The year-to-date net inflows into spot ETPs may be exerting upward pressure on Bit prices. However, this relationship may not be one-to-one, in part because hedge fund trading strategies are becoming more prevalent. Specifically, hedge funds (or other sophisticated and/or institutional investors) can go long Bit ETPs while simultaneously shorting an equivalent dollar amount of Bit futures. This strategy aims to profit from the difference between spot and futures prices, sometimes referred to as a Bit "basis trade" or "arbitrage trade". Because this strategy involves both buying Bit (via ETPs) and selling Bit (via futures), it should not have a significant impact on Bit's market price.
There is no definitive metric, but a CFTC report suggests some hedge funds have increased their Bit futures net short positions by nearly $5 billion since the launch of U.S. spot Bit ETPs in January. Based on this estimate, Grayscale Research believes that around $5 billion of the $24.2 billion in net inflows to U.S. listed spot Bit ETPs this year may have been used to pair spot/futures positions, and thus may not have driven Bit price appreciation (Chart 3).
Chart 3: Hedge Funds May Be Pairing Bit ETP Longs with Futures Shorts
Blockchain as a Value Intermediary for AI Agents
While Bit prices saw a significant increase in October, returns across other crypto market segments were lackluster. For example, the Crypto Sector Market Index (CSMI) — our comprehensive index developed with FTSE/Russell — declined by around 6% (Chart 4). The worst performing segment was the Utilities and Services crypto sector. This diversified crypto sector includes many tokens related to decentralized AI technologies, some of which have pulled back this month after earlier gains in the year, including FET, TAO, RENDER, and AR.
Chart 4: The Utilities and Services sector lagged other crypto segments
While some token valuations have pulled back, the decentralized AI theme remains a focus in the crypto market. We believe this is largely due to new applications demonstrating the use of "AI agents" on blockchains — software capable of understanding objectives and making autonomous decisions.
A key "character" is Truth Terminal, an AI chatbot created by researcher Andy Ayrey. The chatbot has an account on X (formerly Twitter) and autonomously interacts with other X users (i.e., without any input from Andy). The innovation is that Truth Terminal expresses interest in creating a MEME coin called GOAT, then deposits the new MEME coin into an associated blockchain address. With ownership of the MEME coin, Truth Terminal then takes steps to promote the token to its social media followers.
Due to the strong interest of people in this narrative, the related MEME coins have also appreciated by about 9 times, causing many to refer to Truth Terminal as the "first AI agent millionaire". Although this project appears humorous and light-hearted, it shows that AI agents can understand economic incentives and can use blockchain to send and receive value. Other innovative projects are making breakthroughs in the area of collectively owned AI agents, and there will be many use cases in the future.
Although these are still in the early stages, the latest wave of decentralized AI applications may fulfill one of the promises of blockchain technology in a tangible way: it can serve as the core financial infrastructure of the future, acting as a value intermediary between humans, AI agents, and potentially various physical devices. We believe that using permissionless blockchains can be a better way for AI agents to accumulate and transfer resources compared to traditional payment infrastructure.
Summary
The US midterm elections on November 5th may dominate the cryptocurrency and traditional financial markets in the short term. The digital asset industry faces some important issues, and the results of the White House and Congress may to some extent impact the development of the US cryptocurrency business. At the same time, we are encouraged by the bipartisan ownership of digital assets, the many macro trends driving Bitcoin adoption, and the recent technological breakthroughs, particularly at the intersection of cryptocurrencies and AI. Therefore, regardless of the election results next week, we are optimistic that cryptocurrencies will continue to thrive in the US.
