One week until the election, the "Trump Deal" sweeps the crypto market
Stimulated by the "election deal," Bitcoin has taken the lead in starting its upward trend, returning to the long-lost level above $71,000 this week. The cryptocurrency sector has generally risen, and the MEME market is particularly immersed in PolitiFi.
Author: Tuo Luo Finance
Only one week until the election.
As the U.S. presidential election approaches, over 41 million voters across the country have already cast their early ballots for the 2024 presidential election as of the afternoon of October 27 local time. This has led to increased volatility in the cryptocurrency market, with Bitcoin leading the charge, surging back above $71,000 this week after a long absence. The crypto sector has seen many upward movements, and the MEME market is particularly captivated by PolitiFi.
Returning to the two candidates, Harris and Trump are in an increasingly tight race. Due to recent issues such as the mishandling of Hurricane "Milton" and the Israel-Palestine conflict, Harris's approval ratings have quickly declined, allowing Trump to successfully overtake her. Not only has he expanded his advantage in betting odds and swing state polls, but he is also closely trailing in traditional polls. Given the current situation, Trump seems more likely to become the next president of the United States, and the "Trump trade" is thus set to ignite.
Looking back at their policy strategies, both candidates focus on government subsidies to drive capital back into the economy, though their methods differ slightly. Trump promotes private enterprise development through tax cuts, while Harris tends to directly subsidize residents with cash. The flow of capital back into the economy also varies; Harris inherits Biden's governance philosophy, focusing on key core industries such as chips and new energy, while Trump maintains a stance of radical tariffs and "America First."
In the current context, Trump's chances of winning are higher, and the financial markets are naturally more focused on his policy proposals. Specifically, citing the views of CICC, Trump's main governance directions include domestic tax cuts, external tariffs, deregulation, expulsion of illegal immigrants, encouragement of fossil energy, emphasis on technology, and diplomatic isolationism. The cumulative impact of these governance directions could bring upward inflation risks if Trump takes office, which may lead the Federal Reserve to take measures to slow down interest rate cuts and regulate higher terminal rates. From the perspective of the capital market, if economic resilience is maintained, a soft landing would benefit U.S. stocks, cyclical goods, and Bitcoin. However, in extreme cases, inflation could suppress the capital market, benefiting anti-cyclical assets like gold.
Estimation of the impact of Trump's policies on the U.S. economy, source: CICC Research InstituteThis situation can be likened to the 2016 U.S. election, when the market also triggered the "Trump trade," especially after his victory in November 2016, leading to a sharp rise in optimistic expectations. U.S. Treasury yields rose from 1.7% to 2.6% within a month, and the dollar index broke through 103 from 97. In the stock market, the three major indices rose by 10% during this period. Looking at commodities, inflation expectations drove copper and oil prices up significantly, while gold reversed, dropping 3% within a month after the election.
Data source: Bloomberg, CICC Research DepartmentIt is evident that Trump's victory in 2016 was a black swan event, but currently, the capital market has already priced in his potential victory. The standout asset is undoubtedly cryptocurrency. Due to Trump's previous public endorsements of cryptocurrency and the recent launch of his family's crypto project, the crypto market has high hopes for him.
From the crypto prediction market Polymarket, the betting amount has surpassed $2.1 billion, with Trump's winning probability reaching 66.2%, far exceeding Harris by 33 percentage points, and the gap continues to widen. The Bitcoin market has reacted strongly, with Bitcoin continuing to rise as the election approaches, currently above $71,000, and expectations are undoubtedly one of the reasons for this increase.
How will Bitcoin and the crypto market perform before and after the election? Major institutions and analysts have engaged in intense discussions on this topic.
Traders generally believe that the election presents an important trading opportunity, with many betting on a rebound. According to Matrixport data, the U.S. election is igniting market sentiment, with the funding rate for Ethereum perpetual futures reaching its highest level since May 2024, highlighting a strategy of buying on dips.
Top trader Eugene Ng Ah Sio also spoke on social media, stating that positioning is now basically clear, and an upward trend will open after the election. He emphasized that speculative long positions in October have largely been wiped out, and most people will avoid risks in the week following the election, with SOL being a clear asset choice.
Derivatives have drawn similar conclusions. Deribit CEO Luuk Strijers stated that derivatives traders are preparing for a bullish trend in Bitcoin in the days following the U.S. election on November 5. For options expiring on November 8, the open interest value exceeds $2 billion, with key strike prices at $70,000, $75,000, and $80,000. The put/call ratio is 0.55, indicating that the number of open call options is twice that of put options. Compared to Mark IV, Forward IV has shown a significant increase, especially during election week, suggesting that traders expect higher volatility. The forward implied volatility is at 72.29%, indicating that prices may fluctuate by about 3.78% in the days following the presidential election. Demand for call options is strong compared to put options, suggesting that investors are less concerned about managing downside risks.
Institutions also maintain a more optimistic attitude. Just half a month ago, Standard Chartered Bank, often labeled as outrageous by the market, stated that Bitcoin is showing strong upward momentum and may approach its historical high of $73,800 on election day. They believe that factors driving Bitcoin's rise include the steepening U.S. Treasury yield curve, inflows into spot Bitcoin ETFs, and the increasing probability of Trump's victory. Based on the current Bitcoin price, it seems that Standard Chartered may be right this time.
Matthew Sigel, head of digital asset research at VanEck, also predicted in an interview that investors are preparing for the U.S. election, mentioning that this election will follow a similar path to 2020. After the winner is announced, Bitcoin will begin to rise following a short period of volatility, with Trump having a higher probability of winning. Bernstein also reiterated that if Trump wins the U.S. election next month, Bitcoin's price could reach historical highs of $80,000 to $90,000.
In this regard, hedge fund manager Paul Tudor Jones stated that one should not be limited to the presidential candidates, as he believes that regardless of who takes office, the policies will all lead to "inflation," further driving up BTC and other commodity prices.
Bitfinex has also added a quarterly factor based on the election, believing that Bitcoin will experience turbulence in the coming weeks. The uncertainty of the election, the narrative of the "Trump trade," and historically favorable fourth-quarter conditions will create a perfect storm for market trends. A report released by Bitfinex shows that options expiring around key dates before and after the election have higher premiums, with implied volatility expected to peak at 100-day volatility shortly after election day on November 8. Historically, the fourth quarter has ended with gains, with a median quarterly return of 31.34%, which may push Bitcoin to reach or even exceed historical highs after the election.
Of course, despite the majority of institutions and traders expressing optimism, some analysts believe that betting on short-term volatility is shortsighted. Jean Boivin of BlackRock Investment Research mentioned that the market is underestimating the risk of candidates contesting the election results next month, and a controversial election victory typically leads to weeks of legal battles, which could also affect risk assets.
Copper analysts directly pointed out that the market may be at a temporary top before the U.S. election, as on-chain data shows that 98% of short-term holders' wallet addresses are currently in profit. Historically, when this proportion rises significantly, investors tend to lock in profits, often leading to rapid selling pressure.
Looking at the entire crypto market, it is evident that market sentiment remains unchanged, but the macro factors influencing cryptocurrency performance are shifting from monetary policy to the outcome of the U.S. election. The crypto market favors a favorable Trump, and his policy proposals may, to some extent, drive up Bitcoin and its strong correlation with U.S. stocks. Therefore, among many analysts' predictions, Bitcoin is expected to break new highs in this trading cycle.
Even excluding the crypto sector, in other financial segments, similar signals have emerged since September when Trump's probability of winning increased. Given Trump's more aggressive tariff policies, he has claimed that he may impose a blanket 10% tariff on all goods entering the U.S. and 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 CICC Research Department data, as of October 24, oil and gas energy surged by 5.8% since September 26, while the clean energy index plummeted by 9.4%. On social media, since September 23, the Trump Media Technology Group (DJT) has surged an astonishing 289.79%, indicating a clear betting trend.
Of course, this currently only reflects the market's pre-election trading, and expectations are an important part of the current situation. However, this means that expectations have also been taken into account, and once they materialize, a short-term pullback is highly likely. On the other hand, even if Trump takes office, governance must consider the House of Representatives, which dominates fiscal policy; otherwise, he may face governance constraints like Biden did after taking office. However, according to the latest poll from the seasoned political observation site 538 (fivethirtyeight), Trump's chances of winning this year's presidential election have risen to 53%, while the probability of the Republican Party taking the Senate majority from the Democrats is 87%, and the chance of the Republican Party maintaining the House majority is 53%, increasing the probability of a Republican sweep. In this regard, both from the White House and Congress, the current competitive pressure on the Democratic Party has reached its peak.
Regardless, the intense volatility before and after the U.S. election has become inevitable, and any group betting on trading opportunities should remain vigilant. For the election, until the very end, the outcome is never determined; even after the voting is completed, discussions regarding the validity of the results will not cease.
During this period, the most active in the crypto market may only be Bitcoin and MEME.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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