Betting on Bitcoin: Election hype or sustained uptrend?
In this edition of The Wire, we explore key market dynamics as we approach the U.S. presidential election and the November Fed meeting. From varying election betting odds in the crypto markets to shifts in Bitcoin futures positioning and ETF inflows, this edition examines the potential for heightened volatility in both traditional and crypto sectors. We also analyze each candidate’s digital asset policies, October’s moderate Bitcoin performance, and November’s potential as we anticipate market catalysts that could shape the crypto outlook through the year-end.
Macro landscape outlook
With the U.S. election happening tomorrow, November 5th, we're observing a familiar pattern of divergence between crypto-based betting markets and traditional polling, similar to what happened in August. At that time, betting markets predicted higher odds of a Trump win than the polls indicated. Bitcoin was trading near its range highs, and Futures Open Interest was surging. When betting odds later aligned with polling data, the crypto market experienced a significant correction.
Today, Monday November 4th, Polymarket assigns a 58% probability to a Trump victory (Fig 1), while actual polls give Harris a slight edge, creating a setup that mirrors August. As Bitcoin comes off the recent highs, the question for investors remains: is caution justified, or does the broader economic landscape support a continued rally? We lean toward the latter, believing that this time may indeed be different, with October’s momentum potentially extending through November and beyond.
Sources: Project 538, Polymarket, Coinglass
Bitcoin Futures Open Interest recently reached record highs (Fig 2), coinciding with substantial inflows into U.S. spot Bitcoin ETFs—a potential sign of renewed investor interest. Led by BlackRock’s IBIT, these ETF inflows have hit their highest levels since June, accompanied by a surge in overall trading volumes (Fig 3). This simultaneous rise in both futures positioning and ETF demand highlights strong investor appetite, potentially setting the stage for continued momentum in the crypto market as we move toward year-end.
Trump’s pro-crypto push vs. Harris’s balanced innovation approach in digital asset policy
The Trump and Harris campaigns have taken distinct approaches to digital asset policy, reflecting broader ideological contrasts:
Donald Trump’s 2024 campaign: Pro-crypto stance
The Republican position resonates with the crypto community, fueling optimism for a favorable regulatory shift under a potential Trump administration.
Kamala Harris’s 2024 campaign: Cautious pro-crypto shift
The Democratic position balances pro-crypto interests with Democratic Party concerns and offers a strategic middle ground between growth and oversight.
Candidate illustrations courtesy of Washington post.
Source: Coinmarketcap, Cryptoslate, Politico, Tekedia, Cointelegraph
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With both candidates encouraging innovation, we anticipate positive conditions for digital assets regardless of the election outcome. A Trump administration would likely bring deregulation and incentives, potentially sparking a bullish market response, while a Harris administration would support steady growth with a balanced framework, aiding long-term adoption. Bitcoin’s fundamental appeal remains strong, likely bolstered by macroeconomic factors like rising debt and inflation, setting up a favorable medium-term trend.
Key events and opportunities
Bitcoin's 10.8% gain this October, while solid, falls short of a true "Uptober." It ranks only 8th out of the last 12 Octobers, underperforming the historical average return of 22.9% and a median of 27.7%. With a z-score of -0.54, it’s 0.54 standard deviations below typical October performance, underscoring a moderate rather than exceptional October for Bitcoin.
Looking forward, we could be playing catch up in November, or "Morevember" as it's known. This trend could be realized again this year as there are a number of factors that could help returns. The US Presidential Election is nearing closer, which has historically triggered volatility. The Republicans have been vocally supportive of digital assets since the start of the election run, so the party's recent gain in the polls could have a near-term positive influence on Bitcoin's price.
Alongside this, The Fed will be meeting this week to decide on any changes to interest rates, which will also likely impact the market.
Performance recap on previous insights
In the past, we discussed a Risk-Reversal trade - On the 27Dec2024 expiry, buying a Bitcoin 75k strike Call and selling a 52k strike Put, creating a zero-cost structure. This position has since risen in value by 5.1% and closing it now could lock in those gains.?
Strategic trading ideas*
To maintain a bullish stance for Q4, a cost-effective approach could involve using some profits from the above Risk-Reversal trade to purchase a December 27, 2024, call option with a 100k strike for 1%.?
For those with a longer-term view, a 28Mar2025 expiry may be of interest, involving the purchase of a 120k Call against selling a 47k Put for zero cost.
(*)?Investors should consider potential risks before making any investment decisions as the risk of loss could be substantial. This information is not intended as investment advice or a recommendation to buy or sell any investment products.
Correlation with traditional assets
How does its low correlation with traditional asset classes make digital assets a compelling addition to a diversified portfolio?
Portfolio construction?
How might a typical 60/40 portfolio (60% equities, 40% bonds) benefit from a modest 1-5% allocation to digital assets?
The role of active management
Why is active management crucial for optimizing portfolio performance in the digital asset market, given the unique characteristics of this asset class?
Institutional adoption?
What factors are driving institutional adoption of digital assets?
Disclaimer
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