Author: MiyaHedge, encrypted Kol
Compiled by: zhouzhou, BlockBeats
Editor's Note: This article discusses the price fluctuations of Bitcoin during the election period, pointing out that Bitcoin's price is closely related to Trump's chances of winning. The short-term rise has been overly estimated, while the actual rise has already occurred. The value of Bitcoin as an inflation hedge will gradually emerge, and it is believed that the price change after Trump's victory will not be large, and the long-term rise of Bitcoin will eventually occur in 2025/2026.
The following is the original content (edited for easier reading):
Series Analysis of Today's Election Results
First, let's start with an analysis of the betting market odds that are currently driving the Bitcoin price trend. For reference: at the time of this post (14:02 UTC), the odds of Trump winning are 61.7%, and the Bitcoin price is $70,047.38.
Relationship between BTC Price Trend and Trump's Winning Odds
I will first compare the relationship between the BTC price trend and Trump's winning odds, assuming that the fluctuations in Bitcoin's price over the past few weeks are entirely based on Trump's chances of winning. Next, I will divide these price trends into four different stages.
October 5 - October 12: Emerging Opportunity
During this week, the mindset of market participants began to change:
The probability of Trump's victory (slowly rising to over 50% in the betting market) is not zero. In fact, the election situation looks closer than expected (especially after Biden's retirement). This initial realization had an impact: market participants began to hedge against Harris' expected victory or re-evaluate their previous biases.
By comparing the two baskets GSP24DEM and GSP24REP, it can be clearly seen that after the Harris-Trump debate, the market's confidence in Harris' victory was once overly complacent.
The market not only showed complacency about the outcome, but also severely misjudged the possibility of Trump's victory. With almost no attention to the election situation in August and September, the market was close to fully pricing in a Harris victory.
Therefore, the following situation occurred:
1. More than 75% of people believe that the probability of Harris' victory is very high
2. Almost no one is focused on hedging against Trump's victory, everyone is focused on hedging index risks
3. The betting market began to suddenly tilt towards Trump
Another noteworthy event also occurred in the traditional financial market at that time, which can help better understand the speed of the change in sentiment. In the first stage (October 5 - October 12), the demand for index-level hedging was very high. This means that everyone believed that the market index (such as the S&P 500 and Nasdaq) might experience a significant decline. [Remember the situation in Iran?]
As a result, investors rushed to buy index hedges to avoid suffering huge "explosive" shocks. However, whenever there is a large amount of index hedging without the actual risk materializing, the "painful trade" often reverses upwards. So the market started to rise. The worst-case conflict scenario (such as Iran and Israel) did not occur, and the market sentiment also calmed down.
(Look at the image, the return after short-term hedging is often extreme).
The "Fear, Uncertainty and Doubt (FUD)" in the Middle East is not insignificant, although the crypto Twitter (CT) seems to have downplayed its impact. During this one-week period, the premium for index hedging reached an unprecedented high, and the investors' anxiety made them almost entirely focus on the downside risk of the index, while paying little attention to the "yet to come" election.
This reversal of sentiment did not occur when oil prices peaked in early October (look at the image: oil price pressure), but in late October. The Trump/election trade began when investors were fully focused on index risk (look at Bitcoin's strong performance on October 10), not just recently.
The above content is to help readers understand the theme of the period from October 5 to October 12, why the attention to this trade was lacking, why the "Trump trade" became such an important dominant theme, and why there were ultimately no buyers to take over the profit-taking.
In summary: the index risk brought by the Middle East situation provided a good buying opportunity for those willing to challenge the panic sentiment, and the "Trump trade" was thus initiated. The complacency about Harris' victory began to reverse, and the market focus shifted to the Middle East FUD.
Then, something happened: the Trump-sensitive stocks saw the most hated rebound, driven by "no one having the right tail risk" and the mean reversion of Trump. Bitcoin reacted more slowly to this change in sentiment, we were one of the last assets to follow the change, rising along with Trump's media (a bit like meme stocks) as Trump's chances of winning increased. (The actual stock basket adjusted faster, with most Republican stocks already adjusted by early October.) Mean reversion is happening.
Bitcoin started to show strength from the last correction on October 10, as market participants realized that the election trade had begun, and the entire market was now in a "risk-on" state.
October 12 - October 30: Chasing the Rally
During this 18-day window, the accumulation of Bitcoin simply crazy, just waiting for the election results. This rally was basically a one-way upward trend, with shorts being mocked and all corrections being swallowed. ETF inflows hit new highs. It was a crazy bullish environment.
But why was this the case? Saylor's forward-looking trade? Actually, not really, MSTR's announcement hardly caused any ripples - all this was due to the election trade, and nothing else. Apart from the rise in Trump's chances of winning, there were no other factors (such as interest rates or inflation) that could provide such a bullish signal for buyers.
During those few days, the market was rising almost every day, with geopolitical risks and Nasdaq's weakness completely ignored (for example, on October 15, the divergence between Nasdaq and Bitcoin's performance). The entire market behaved like a big green candle. All of this was closely related to Trump's chances of winning. Trump-sensitive stocks were heavily bought, and Bitcoin also rose accordingly.
We have been chasing the price, with open interest (OI) constantly increasing, even though the lead in perpetual contracts is very large, Bitcoin continued to rise without experiencing a violent correction, even when Nasdaq was weak. For example, around $67,000 on October 17, the price remained stable for a while, and then the spot market followed slightly, but there was no significant correction. This indicates that there is not only short-term leverage liquidation demand in the market, but also actual demand supporting the rise. This also implies that this rally is event-driven, with investors hoping to enter the market at this time.
Around October 14, the market shifted from "we didn't properly consider the probability of Trump's victory" to "Trump seems to be winning, now we need to rush to chase the rally." That week, the performance of the macro market showed a clear Trump trade-related correlation, especially in the nuclear energy and commercial real estate sectors, which rose along with Bitcoin-sensitive stocks. Clearly, this rally was not a coincidence, but the result of the Trump trade. The true core of this market movement occurred that week, and any subsequent rallies were just speculative capital betting on the short-term outcome.
After several consecutive days of gains, a reversal finally occurred. October 30 - November 4: During the reversal trade period, the Bitcoin price was highly correlated with the probability of Trump's victory. Since October 10, the market for the first time did not easily absorb the pullback as it had in the past, and although prices hit new highs, technical factors (such as the improvement in open interest of futures contracts) did not change much, but the market became hesitant.
This hesitation was due to the decline in the probability of Trump's victory, not the so-called "resolution of election risk." For example, the S&P 500 and Nasdaq 100 indices rose 1% and 1.2% respectively, but this was not due to the resolution of election risk, but rather the decline in the probability of Trump's victory, leading to a significant sell-off. This correlation was unimaginable a few months ago, and the supply held by market participants with election bets is now so large that it completely dominates the price trend.
Why is Trump's victory - if it is now so important to the Bitcoin price trend - not pushing Bitcoin above $80,000? Currently, every small price fluctuation is related to the probability of Trump's victory, but why is Trump's victory not directly driving Bitcoin's rise?
Who will be the next buyer? Why? Who will come out and say "yes, now is a good time to buy a lot of Bitcoin" after Trump's victory? Of course, there will be buyers, but will they be able to outweigh those investors who have already accumulated Bitcoin for more than a month, and who are ready to take profits once their bet is successful? The answer is no.
After Trump's victory, we may see the entire rally retreat. So what short-term incentives are there to encourage people to buy Bitcoin now? Will Trump announce the establishment of a sovereign Bitcoin fund on the day of his inauguration? No. What other policies need to change? The US is already moving in a Bitcoin-friendly direction. How many times did Trump mention Bitcoin or cryptocurrencies during the campaign, especially compared to issues like immigration? None.
Therefore, there will not be much change in the short term, and people are now facing a time window of over 2 months (until January 20th when Trump officially takes office), and after that, it may take a long time to see real changes.
Traders will not bet on something that may happen at least 2 months from now, and buying Bitcoin now is not a bet on Trump's presidency, but on the upcoming election result. The 40% probability of Harris' victory reduces the attractiveness of long Bitcoin now, because you still face a large amount of short-term supply selling. If the upside is a 60% chance of winning $4, and a 40% chance of losing $10, then from a risk/reward perspective, the long trade is not very attractive. Therefore, many people forget that this election market is more like a "mowing field" full of short-term capital.
My Bitcoin price forecast summary: Trump victory: Initial excitement, may surge to new highs, but lack support around $70k, then retreat, savvy holders will buy Bitcoin as an inflation hedge. Harris victory: 1 month of "pre-betting" on Trump's victory fails, leading to a significant sell-off, more savvy holders will buy the supply, and the price will slowly rise back to new highs as an inflation hedge.
I believe the election result is not important, I am bullish on Bitcoin, believing it is an inflation hedge tool, but the short-term rally volatility is overestimated, and the core of the market movement has already occurred.
