Designated Trump? How does the trading market view the election situation?

Author: Chandler, Foresight News

On November 5, 2024, the U.S. presidential election will conclude, and the competition between Kamala Harris and Donald Trump remains intense, with the election situation still in a deadlock.

From past experiences, polls have indicative significance for the election. The political forecasting website RealClearPolitics (RCP) shows that if voting were to occur based on the current state polls, Trump and Harris have secured 219 and 215 electoral votes for their respective camps.

According to the average of polls, Trump's support rate has surpassed Harris's by 0.4 percentage points.

Additionally, on the Polygon-based prediction market Polymarket, Trump's probability of winning has risen to 67%, while Harris's probability has dropped to 33.1%, with Trump leading by 33.9 percentage points. According to Lookonchain monitoring, in October, 10 whale addresses collectively spent $70.6 million on betting for Trump to win the U.S. election on Polymarket.

However, the existing odds on Polymarket do not fully reflect the true sentiments of American voters.

According to Bloomberg, Polymarket confirmed that a large buyer of Trump’s victory, a whale named FREDI9999, is a French trader. As of October 24, four accounts named FREDI9999, Theo4, PrincessCaro, and Michie have placed heavy bets on Trump’s victory, with a potential payout totaling about $46 million.

Polymarket stated that the company conducted an investigation and concluded that this trader was betting based on "personal views on the election" and found no information indicating that the user was manipulating or attempting to manipulate the market.

Furthermore, Fortune magazine recently reported that analysts from blockchain companies Chaos Labs and Inca Digital found rampant wash trading on Polymarket. They discovered signs of false trading activity, where buying and selling often occurred simultaneously and repeatedly to create a false impression of trading volume and activity. Chaos Labs found that false trades accounted for about one-third of the trading volume in the U.S. presidential election market on Polymarket, while Inca Digital found that "a large portion of the market's trading volume" could be attributed to potential false trades.

Inca stated that the actual trading volume in the presidential election prediction market is about $1.75 billion, while Polymarket reported a figure of $2.7 billion. Chaos Labs attributed this to Polymarket conflating trading shares with dollars.

It is also worth noting that in the U.S. presidential election, the Electoral College system means that the nationwide popular vote does not determine the final outcome; the polls in key swing states are the core of the election situation. Even if a candidate receives more votes nationwide, they could still lose the election if they fail to win the electoral votes of key states. Therefore, voter intentions in swing states are more critical than national popular polls, as these states often play a decisive role in the election outcome.

How Traditional Financial Markets View the Election

On October 29, the Nasdaq Composite Index rose by 0.78%, closing at 18,712.75, setting a new historical high. On October 30, the three major U.S. stock indices slightly declined, with the Nasdaq ending a four-day winning streak, down 0.56%. From the perspective of floor traders and investor sentiment, as the U.S. presidential election approaches in just one week, the market is preparing for the possibility of Trump returning to the White House. Phillip Wool, head of portfolio management at Rayliant Global Advisors, stated that the odds of Trump winning the presidential election are increasing, which is favorable for the U.S. stock market in the short term. He pointed out that the fiscal deficit will increase, inflation will rise, which may slow the Federal Reserve's rate-cutting pace. All of this will create upward pressure on the dollar.

Meanwhile, the latest valuation of Truth Social, Trump's social media platform, has surpassed that of Musk's social media platform X. As of the close on October 29, the stock price of Truth Social's parent company, Trump Media & Technology Group, has surged 324% from its recent low on September 24, with a market value climbing to $10.3 billion. However, it also saw a pullback on the 30th, with its market value returning to around $8 billion.

The yield on the U.S. 10-year Treasury bond briefly rose to 4.34% earlier on the 29th, the highest level since early July, and closed at 4.28% on the 30th. The spot price of gold in London reached $2,798 per ounce, again setting a new historical high.

Bitcoin surged to $73,600 (the highest point since March) before slightly retreating, currently trading around $72,500, close to its historical high.

However, on another level, the election situation is far from certain. According to Shenwan Hongyuan's analysis, in the short term, if Trump is elected, the continuity of previous trades may be relatively limited, but if Harris wins, there may be a significant reversal of previous trades. Historically, the betting market's predictions for election outcomes have not been reliable; out of the 22 elections since 1936, five failed to make accurate predictions; polls also have their flaws.

This year, the continuation of mail-in ballots, the migration of populations between urban and rural areas post-pandemic, and new biases in polling models due to Trump's adjustments may all contribute to uncertainty in the results, but market trading has clearly tilted towards Trump. This means that if Trump is successfully elected, market trends may resemble those of 2020 and 2012, with slight continuity in previous trades; however, if Harris wins, the market may experience a significant reversal similar to 2016.

Crypto Market: High Open Interest Awaiting Breakthrough

Currently, the open interest in the crypto market has significantly increased, especially in the Bitcoin options and futures sectors, indicating strong investor expectations for the upcoming U.S. election and subsequent market volatility. Luuk Strijers, CEO of Deribit, pointed out that derivatives traders are preparing for a bullish trend in Bitcoin in the days following the November 5 U.S. election.

Strijers stated: "For options expiring on November 8, the open interest is valued at over $2 billion, with the main strike prices at $70,000, $75,000, and $80,000, and 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, indicating that traders expect higher volatility. The forward implied volatility is 72.29%, suggesting that prices may fluctuate by about 3.78% in the days following the presidential election."

Bitcoin options open interest has risen to a nearly six-month high

Data Source: Coinglass

Strijers further added that the peak in implied volatility is temporary, indicating that the market does not expect long-term uncertainty. The 25 Delta Skew (puts - calls) is overall negative, suggesting that the market expects a greater upward trend, with bullish sentiment increasing. Demand for call options is strong relative to put options, indicating that investors are less concerned about managing downside risk.

From the data on Bitcoin spot ETFs, on October 29, the total net inflow into Bitcoin spot ETFs was $870 million, marking the third-highest single-day net inflow in history. The other two highest net inflows were $1.05 billion on March 12 and $887 million on June 4.

As of the time of writing, the total net asset value of Bitcoin spot ETFs is $72.545 billion, with the ETF net asset ratio (market value relative to total Bitcoin market value) reaching 5.07%, exceeding 5% for the first time in history.

October 29 Bitcoin spot ETF had the third-highest single-day net inflow in history

Data Source: SoSoValue

Additionally, the open interest in Bitcoin futures reached a new high in dollar terms on the 29th. The open interest in BTC futures saw the largest single-day increase since June 3, with over 20,000 BTC added in one day.

Daily changes in futures open interest

Data Source: Glassnode

Open Interest (OI) refers to the total number of derivative contracts (such as futures or options) that are not yet settled at a specific time. A higher open interest typically indicates greater market interest in that particular asset. When the number of open contracts increases alongside rising prices, it suggests that new funds are flowing into the market, which is usually seen as a signal of trend strengthening. This situation has been observed in recent trading days.

As of the time of writing, the total open interest in Bitcoin has reached $43.468 billion. In the past two days, the number of open contracts on CME exceeded 170,000 BTC, valued at over $12.549 billion, giving it about 30% dominance in the futures market. Binance's Bitcoin futures have open positions exceeding 127,100 BTC, valued at over $9.2 billion, accounting for over 20% of the market.

CME BTC contract open interest is nearing historical highs

Data Source: Coinglass

Overall, both traditional markets and the crypto market are showing a certain level of optimism, with some traders seemingly positioning themselves again for the "Trump trade" opportunity. In the short term, the political uncertainty during the election often brings significant price volatility. These fluctuations stem not only from voters' changing expectations of candidates' policies but are also driven by the market's reaction to economic fundamentals. However, in the long term, asset pricing still primarily depends on fundamental factors, and the election's impact on the market is usually realized through changes in the fundamentals.