The market was relatively calm last week, with risk appetite sentiment still continuing. The US stock market, US bond yields, the US dollar exchange rate, gold and BTC prices are all approaching their mid-term or year-to-date highs. US economic data has been strong, with retail sales exceeding expectations (actual monthly increase of 0.6%, control group monthly increase of 0.7%), unemployment claims remaining stable, continuing to support the narrative of a soft landing.
The earnings season has also been favorable for the market, with the performance of US banks, Netflix and TSMC (up 9.8%) far exceeding expectations. The SPX index has risen for 6 consecutive weeks, setting the best consecutive rise record so far this year, and investors remain confident in the market and corporate earnings, with option-implied earnings day volatility about 5% lower than the recent average.
The focus has naturally been on the US election recently, with much discussion about the divergence between Polymarket's predictions (60% probability of Trump winning) and traditional predictions (still close to 50/50). Regardless of the details, macro asset trading may be entering November with a bias towards a Trump victory, as bond traders generally expect Trump to be more aggressive in pushing for fiscal spending in his second term, and the recent trend in US bond yields has shown an extremely high correlation with the probability of a Trump victory.
BTC seems to be awakening from a long-term slumber, breaking out of its downward channel and seeking to challenge its all-time high before the election. The price has recently broken through $68,000, and ETFs have seen about $2.4 billion in inflows over the past 6 trading days, while BTC futures open interest has also surged accordingly, which may be a positive indicator of the market building new long positions.
Encouragingly, the increase in BTC inflows has coincided with a significant increase in derivatives trading activity on the Chicago Mercantile Exchange (CME), with CME futures open interest exceeding $11.5 billion, a new high. Furthermore, according to K33's research, the growth in CME open interest has been driven by "direct participants" rather than leveraged capital inflows, presenting a healthier bullish structure and more positive buying sentiment. Additionally, considering that traditional finance (TradFi) participants are largely restricted from trading on centralized exchanges, the surge in CME trading activity also indicates the increased participation of more mainstream and TradFi participants.
The current market focus is on the US election, and for cryptocurrencies, the most favorable outcome would be a Trump victory and a Republican sweep of both houses of Congress, which would give the Trump/Vance-supported digital asset reform plan a chance to pass through Congress. The next best scenario would be a Trump victory with a divided Congress, where the reform plan may face some resistance from the House Financial Services Committee, although incumbent senior member Maxine Waters has previously urged the inclusion of stablecoin legislation in the defense bill.
On the other hand, if Harris is elected but Congress is divided or Republican-controlled (the probability of a Democratic sweep is relatively low), it would bring more uncertainty, as Harris has not yet detailed any specific cryptocurrency-related policy goals, only stating that she wants to "encourage innovative technologies like AI and digital assets". Let's stay tuned!
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