With only one week left until the election.
The US presidential election is approaching, and as of the afternoon of October 27 local time, more than 41 million voters nationwide have already cast their ballots for the 2024 presidential election. As a result, the cryptocurrency market has also become increasingly volatile, and with the "election trade" stimulus, Bitcoin has taken the lead in starting a rally, returning to the $71,000 level this week, with the cryptocurrency sector seeing broad gains, and the MEME market immersed in PolitiFi.
Turning to the two candidates, Harris and Trump are becoming increasingly entangled. Due to the poor handling of the "Milton" hurricane and the conflict between Iran and Israel, Harris' approval rating has plummeted, and Trump has successfully taken the lead, not only continuing to expand his advantage in betting odds and swing state polls, but also closely chasing in traditional general polls. Based on the current situation, Trump seems more likely to become the next US president, and the "Trump trade" is therefore about to be triggered.
Reviewing the policy strategies of the two, they are both focused on government subsidies, with the core purpose of driving capital inflows, but with some differences in their approaches. Trump uses tax cuts to drive the development of private enterprises, while Harris tends to directly subsidize residents, and the capital inflows also differ, with Harris inheriting Biden's governing ideas, focusing on key industries such as chips and new energy, while Trump still adheres to the aggressive tariffs and "America First" proposition.
In the current context, Trump has a higher chance of winning, and the financial markets are naturally more focused on his policy proposals. Specifically, citing the views of CICC, domestic tax cuts, increased tariffs on foreign countries, relaxed regulation, deportation of illegal immigrants, encouragement of fossil energy, emphasis on technology, and foreign policy isolationism are the main governing directions of Trump. The cumulative impact of these governing directions may bring upward inflationary risks, which may lead the Fed to take measures to slow the pace of rate cuts and control a higher terminal interest rate. From the capital market perspective, if economic resilience is maintained, a soft landing would be positive for US stocks, cyclical commodities and Bitcoin, but in extreme cases, inflation would suppress the capital market, with anti-cyclical commodities such as gold benefiting.
Estimated impact of Trump's policies on the US economy, source: CICC Research
Here we can refer to the 2016 US election, when the market also triggered the "Trump trade", especially after his victory in November 2016, with optimistic expectations suddenly rising. US bond yields rose from 1.7% to 2.6% within a month, and the US dollar index also broke through 103 from 97. Looking at US stocks, the three major indices gained 10% during this period, and in terms of commodities, inflationary expectations drove copper and crude oil to surge, while gold reversed, falling 3% within a month after the election.
Source: Bloomberg, CICC Research
It is obvious that Trump's victory in 2016 can be considered a black swan event, but currently, the capital market has been pricing in his potential victory. The most prominent asset is undoubtedly cryptocurrencies. As Trump has repeatedly endorsed cryptocurrencies in public, and has recently launched a family cryptocurrency project, the cryptocurrency market has high expectations for him.
Looking at the cryptocurrency prediction market Polymarket, the betting amount has exceeded $2.1 billion, with Trump's winning probability reaching 66.2%, far exceeding Harris by 33 percentage points, and the gap is still widening. The Bitcoin market has responded strongly to this, with Bitcoin continuing to rise as the election approaches, currently reaching above $71,000, and the expectation is undoubtedly one of the reasons for the rise.
How will Bitcoin and the cryptocurrency market perform before and after the election? Major institutions and analysts have also engaged in heated discussions on this.
Traders generally believe that the election is an important trading opportunity, and many are betting on the post-election rebound. According to Matrixport data, the US election is igniting market sentiment, with the funding rate of Ethereum perpetual futures reaching the highest level since May 2024, and the strategy of buying the dip is prominent.
Top trader Eugene Ng Ah Sio also commented on social media that the positioning has been basically clear, with an upward trend opening up after the election, and he also emphasized that the speculative long positions in October have basically been wiped out, and most people will avoid risks in the week after the election, with SOL being the clear asset choice.
Derivatives have also reached similar conclusions. Deribit CEO Luuk Strijers said that derivatives traders are laying the groundwork for a bullish trend in Bitcoin in the days after the US election on November 5. For options expiring on November 8, the value of open interest exceeds $2 billion, with the main strike prices at $70,000, $75,000 and $80,000, and a put/call ratio of 0.55, indicating that the number of open call options is twice the number of put options. Compared to Mark IV, the Forward IV has a clear increase, especially during the election cycle, indicating that traders expect higher volatility. The forward implied volatility is 72.29%, suggesting that prices may fluctuate around 3.78% in the days after the presidential election. Compared to put options, the demand for call options is strong, and investors are not too concerned about managing downside risk.
Institutions also hold a more optimistic attitude. Just half a month ago, Standard Chartered Bank, which has long been dubbed "outrageous" by the market, stated that Bitcoin is showing a strong upward trend and may approach the historical high of $73,800 on the day of the US election, believing that the factors driving Bitcoin's rise include the steepening of the US Treasury yield curve, the inflow of funds into spot Bitcoin ETFs, and the increased probability of a Trump victory. Looking at the current Bitcoin price, Standard Chartered may be right for once.
VanEck's digital asset research director Matthew Sigel also made a prediction in an interview, saying that investors are preparing for the US election, and that this election will follow a similar path to 2020, with a short-term volatility spike after the winner is announced, and then Bitcoin will start to rise, with Trump having a higher probability of winning. Bernstein also reiterated that if Trump wins the US election next month, Bitcoin's price could reach a new historical high of $80,000 to $90,000.
Regarding this, hedge fund manager Paul Tudor Jones stated that it is not necessary to be limited to the presidential candidate, as he believes that regardless of who takes the presidency, the policies adopted will be "all roads lead to inflation", which will further drive up the prices of BTC and other commodities.
Bitfinex has also added a quarterly factor based on the election, believing that Bitcoin will experience turbulence in the coming weeks, with the uncertainty of the election, the "Trump trade" narrative, and the historically favorable fourth-quarter conditions creating a perfect storm for market trends. Bitfinex's report shows that the premiums on options expiring around key election dates are higher, and implied volatility is expected to peak around November 8, just after the election, while historically, the fourth quarter of the halving year has ended with a bullish trend, with a median quarterly return of 31.34%, which may drive Bitcoin to reach or even exceed its historical high after the election.
Of course, although most institutions and traders are bullish, there are also analysts who believe that betting on short-term volatility is short-sighted. Jean Boivin of the BlackRock Investment Institute mentioned that the market is underestimating the risk of one of the US presidential candidates disputing the election result, and a contested election victory usually leads to weeks of legal battles, which will also impact risk assets.
Copper analysts directly pointed out that the market may be at a temporary top before the US election, as according to Bitcoin on-chain data, 98% of short-term holder wallet addresses are now in profit. Historically, when this ratio rises sharply, investors tend to want to lock in profits, leading to rapid selling pressure.
Looking at the entire cryptocurrency market, it can be seen that the market sentiment has not changed, but the macroeconomic factors affecting the performance of cryptocurrencies are shifting from monetary policy to the results of the US election. The cryptocurrency market is more inclined to favor Trump, and Trump's policy proposals will also to some extent push up Bitcoin and its associated US stocks. Therefore, in the forecasts of many analysts, Bitcoin is expected to break new highs in this trading cycle.
Even excluding the crypto sector, in other financial sectors, the market has also revealed similar signals since the increase in the probability of Trump's victory in September. Given Trump's more aggressive tariff policy, he has stated that he may impose a uniform 10% baseline tariff on all goods entering the US, and impose a 60% or higher tariff on China. Recently, the exchange rates of the Renminbi, Mexico and Vietnam have weakened. In the traditional energy sector supported by Trump, according to data from Citic Research, as of October 24, the oil and gas energy sector has surged 5.8% since September 26, while the clean energy index has plummeted 9.4%. In terms of social media, since September 23, the Trump Media & Technology Group (DJT) has surged an astonishing 289.79%, with a clear betting trend.
Of course, this currently only reflects the pre-election trading in the market, and expectations are an important part of the current situation. But this means that expectations have also been taken into account, and there is a high probability of a short-term pullback after the expectations are realized. On the other hand, even if Trump takes office, his policies will also need to consider the House of Representatives, which dominates fiscal and tax policies, otherwise he will face the same constraints as Biden after taking office. But according to the latest poll by the veteran political observation website 538 (fivethirtyeight), Trump's chances of winning the presidential election this year have risen to 53%, the Republican Party's chances of taking the Senate majority from the Democrats are 87%, and the Republican Party's chances of maintaining a majority in the House of Representatives are 53%. In this regard, the Democratic Party's competitive pressure, whether from the White House or Congress, has reached its peak.
In any case, the violent fluctuations before and after the US election are inevitable, and any group betting on trading opportunities should remain vigilant. For the election, the winner is never determined until the very end, and even after the voting is completed, the debate over the validity of the results will not cease.
During this period, the most active cryptocurrencies in the market may only be Bit and MEME.
