Original author: James Hunt
Original translation: Bai Hua Block Chain
Election Day in the US has arrived, and the 24/7 trading nature of the crypto currency market has an advantage over the trading hours of the traditional market. Kaiko's analysts outline three key metrics to watch as the election results are announced.
1. Tick-by-tick trading data
First, observing the tick-by-tick trading data on major platforms can provide insights into the movements of "smart money". By calculating the cumulative volume delta (CVD) from the tick-by-tick trades, the net buying and selling activity across global crypto trading platforms can be measured. Kaiko analyst Adam Morgan-McCarthy said this metric provided valuable insights during the Trump-Kamala Harris presidential debate, and is expected to play a role again during the election. In September's debate, the CVD turned negative, indicating a bearish market reaction to Trump's performance, as Harris was seen as less crypto-friendly compared to Trump's clear pro-crypto stance.
CVD on Coinbase during the presidential debate
Source: Kaiko
The analyst explained that by breaking down the tick-by-tick trades into buys and sells, the real-time market reaction to Trump's performance can be observed through the strong selling pressure. This helps to gauge market timing, showing when buying and selling pressure eases, and provides clues about participants' expectations.
BTC buys and sells on Coinbase during the presidential debate
Source: Kaiko
2. Funding rates
According to Kaiko's analysis, the second metric to watch is funding rates, as leveraged traders are highly sensitive to sudden changes, which could lead to market squeezes or cascading liquidations, regardless of whether the market is rising or falling.
Higher funding rates typically indicate increased speculative activity in BTC perpetual contracts. In March, when BTC broke above $73,000 to hit a new all-time high, funding rates spiked above 0.05%. However, McCarthy said that last week, as BTC approached similar levels, funding rates remained around 0.01% on the two largest perpetual contract platforms, BN and Bybit, suggesting a decline in trader confidence ahead of the election.
BN adjusts its funding rates every 8 hours, with the first adjustment at 12 PM Eastern Time, followed by another adjustment at 8 PM Eastern after the East Coast polls close. The next adjustment will be at 4 AM Eastern on Wednesday, by which time the election results may be clearer.
3. Implied volatility
Finally, implied volatility (IV) is also a key metric in the derivatives market, reflecting how participants are pricing risk. IV is a forward-looking indicator that predicts the expected volatility of an asset over a given time frame, aggregating multiple data points into a single number to allow traders to assess whether options are relatively cheap or expensive.
Monitoring the IV term structure can help traders anticipate potential market risks. An inverted IV term structure, where short-term IV is higher than long-term IV, often signals an impending risk event, such as the US election, the Kaiko analyst explained.
Recently, the BTC rally approaching new highs has caused short-term IV to spike, catching traders off guard and prompting them to adjust their positions. This has impacted the IV smile - a pattern showing options with current prices slightly above or below the at-the-money strike have higher implied volatility. A right-skewed IV smile indicates the market expects upward price volatility, while a left-skewed one suggests concerns about potential downside, he added.
BTC implied volatility ahead of the US election
Source: Kaiko
Ultimately, the market is driven by supply and demand dynamics and influenced by participant behavior, but McCarthy noted that the predictive accuracy of these trends remains uncertain, as traders are not infallible.
4. Prediction markets and polls diverge in uncertain outcome
Currently, Trump has a 62% probability of winning on the decentralized platform Polymarket, while Harris has a 38% chance. The platform has seen $325 million in trading volume on the presidential election outcome, making it the largest prediction market to date. On the regulated Kalshi platform, Trump has a 57% chance, while Harris has a 43% chance. However, Bernstein's analysts pointed out on Monday that the national poll average remains close, with Harris leading by 1%, within the margin of error.
Kaiko previously noted that the high open interest on Polymarket suggests the platform lacks sufficient liquidity for US election betting, and its predictive capabilities have been questioned. Analysts at crypto trading firm and market maker GSR this week mentioned that others have pointed out that prediction markets have had mixed performance in elections, with large players potentially distorting the market, or potential biases due to the platform's male, crypto-native user base and non-US traders.
However, after the two candidates' odds briefly converged over the weekend, Gotham Chugani, head of Bernstein's digital assets division, said: "For those who think Polymarket data is skewed by a Trump bias, we believe the weekend trading data is sufficient to show it operates like any public market, and traders can easily be spooked by the gradually increasing poll data."
Moreover, supporters of prediction market accuracy argue that the focus on voter polls rather than the Electoral College, and the use of retrospective polls in election models, are key factors. They also note that most betting markets have odds similar to Polymarket, suggesting little market manipulation. GSR added that academic research generally shows prediction markets are more accurate than surveys or expert opinions, driven by transparency, collective wisdom, and market dynamics pushing odds towards accuracy.
Kaiko pointed out that Pennsylvania, North Carolina, Georgia, Michigan, Wisconsin, Arizona, and Nevada are key focus states on election night, with Pennsylvania being particularly crucial. If Harris loses its 19 electoral votes, according to some polls, the path to the White House would become exceptionally difficult, if not impossible.
Currently, on Polymarket, Trump is leading in Arizona, Georgia, Nevada, North Carolina, and Pennsylvania, while Harris is leading in Wisconsin and Michigan.
5. Expected BTC price impact
Amberdata's head of derivatives, Greg Magadini, told The Block that he expects BTC to fluctuate between $6,000 and $8,000 after the election, with BTC potentially dropping to $60,000 if Harris wins, and potentially breaking above $75,000 to a new high if Trump wins.
BRN analyst Valentin Fournier also agreed, predicting a roughly 10% price swing for BTC after the election, with a positive impact expected if Trump wins, and a potential price pullback if Harris prevails. "However, regardless of the election outcome, the medium to long-term outlook for BTC remains positive," Fournier noted.
On Monday, Bernstein analysts said they expect BTC to reach $80,000 to $90,000 by January 20th, Inauguration Day, if Trump wins, but warned that if Harris wins, BTC could drop to $50,000 in the same period before rebounding.
According to The Block's BTC price page, BTC is currently trading at $68,828. Over the past week, BTC has declined by around 4%, but is up 63% year-to-date.
At the same time, the GMCI 30 index, which represents the top 30 cryptocurrencies, has fallen by about 7% in the past seven days, currently at 120.08, but has risen by about 21% in 2024.
