Bitcoin Finally Jittery Ahead of US Elections
The US election jitters have finally caught up with Bitcoin, which has faltered significantly in the last leg of the presidential race.
The top token has crashed since rallying to within $234 of March's all-time high of $73,798.
First, on Friday, Bitcoin tanked 4%, marking its biggest decline in a month, and fell further over the weekend.
The token is now trading below $68,500, with over 1% losses on Monday. From last week's highs, Bitcoin has fallen by about $5,000.
The faltering rally coincided with a pullback in the chances of a Donald Trump win on election results betting sites like Predictit, Polymarket and Kalshi.
Some have called Bitcoin a "Trump trade" since he endorsed the crypto industry.
While Trump sees the United States as the global crypto capital, Kamala Harris has taken a more cautious approach, promising to support a regulated framework for the industry. Both their positions contrast President Joe Biden's onslaught on the sector.
Bitcoin's Unwind From Near Record High
With betting markets reducing the likelihood of pro-crypto Trump winning the election, the so-called "Trump trade" has started to unwind.
Trump's Lead Narrows
Controversy surrounds prediction markets due to differing opinions on its informative worth and susceptibility to manipulation.
With Election Day fast approaching on November 5, opinion surveys indicate a highly competitive race.
Opinion polls have often been wrong in the past and the predicted gap between Trump and Harris is well below the margin of error in these surveys.
Extreme Volatility on the Cards
Investors are bracing for an extremely volatile period as the US election is just a day away. Traders are preparing for extreme see-saw moves, from stocks to cryptos to alternative investments.
As shorter-term options are simpler to place closer to an event, it is unsurprising that much of the election hedging has come at the eleventh hour.
Investors are braced for greater swings as implied volatility continues to outpace realised levels. This comes despite the S&P 500 Index going 29 sessions without a dip of more than 1%.
Apart from broader indices, certain other investments, including cryptocurrency and renewable energy equities, are seeing extreme volatility compared to their medians.
There has been a price movement of about 10% in crypto equities and roughly 6% in renewable energy company stocks.
After the election is over, the fundamental market movements will be in place to support a rally until the end of the year.
This includes the removal of hedges, the beginning of mutual fund purchasing in November, firm share repurchases, and systemic buying and hedging by option dealers due to decreased volatility.
Preparation for an uncertain election that might have a major impact on policy is inevitable for the wealthy on Wall Street.
Traders are expected to work through the clock, with assistance from groups in Singapore and Hong Kong, as they keep tabs on popular Trump trades – long the dollar, short bonds – to anticipate when to enter or exit the market.
As a result of the election, the options market has gone from being extremely optimistic to being more focused on hedging, and crypto traders are taking different approaches.
Data collected by crypto liquidity provider B2C2 shows that short-term contracts, such as 14-day puts, have far higher implied volatility than calls with the same expiration date, which has remained relatively consistent.
A bullish outlook is evident beyond the election, with an increasing premium for calls across longer tenors and termed Bitcoin futures on CME. This suggests that there may be more rate cuts and positive changes in crypto policies in the coming months.
However, there is no clear directional bias due to the increased volatility leading up to the election.
Event Risk Piles High
Global markets, supported by dovish central banks, growing economies, and falling inflation, are now facing the reality of how vulnerable they were at the start of November.
The once-solid foundations are beginning to crumble.
Spotty tech results have erased a month's worth of market gains and sent the Nasdaq 100 to its first weekly loss in eight, despite tech being a primary trigger for higher moves to records this year.
A record run of consecutive gains in bonds and stocks has recently reached a standstill due to event risks, such as the tight presidential race and significant uncertainty surrounding the Federal Reserve's interest rate policy.
No time in the cycle has there been as widespread fear across all asset classes as it is right now, from equities and bonds to commodities and currencies.
Concerns surface in cross-asset volatility as Trump trades take center stage.
In the week before the election, a measure of cross-asset risk maintained by Bank of America reached a level not seen in pre-election periods outside of the financial crisis.
All things considered, it's going to be a very dramatic year for risk assets, which were already ranking among the greatest in decades until recently.
Despite credit risk metrics being around multi-year lows and Bitcoin experiencing a 65% increase, the S&P 500 has risen by as much as 23% in 2024, supported by the AI euphoria.
The risk appetite among investors has receded ahead of the US elections and the FOMC meeting this week.
Five-Month Cross-Asset Rally Halts
The run of combined gains in stocks and fixed income that ended in October was the longest since at least 2007.
In anticipation of a high-stakes week, risk appetite generally diminished, even if the S&P 500 pared a weekly fall on Friday.
The focus of fiscal policy has shifted to Tuesday's presidential vote, and bond bears, who have recently reduced their bets on rapid monetary easing, will have their patience tested by the Fed on Thursday.
Concern about hedging instruments is growing. The nine-day version of the CBOE Volatility Index (VIX), which now includes the election and Fed meeting, nearly doubled in two weeks, marking the largest spike since 2022.
Uncertainty revolves around the presidential campaign between Donald Trump and Kamala Harris. The fight contrasts opposing economic agendas, and polls suggest no clear winner.
A lot is going on elsewhere right now, and there's still too much we don't know about the race to draw any conclusions about the market beyond speculative connections to higher yields, cryptocurrency's surge, and gold's run-up.
VIX Trades Around Election Day
With the Fed's rate decision coming two days after the polls close, traders are finding it more difficult to gauge market swings in the absence of a clear winner.
Elsewhere
Blockcast
This week's Blockcast features Arisa Toyosaki co-founded Cega, a DeFi protocol focused on structured investment products.
Toyosaki explains how Cega offers exotic options that cover market fluctuations up to 90% and educates users through detailed documentation and various media
Toyosaki also discusses how retail and institutional trading has evolved, with more retail interest in meme coins and perpetuals, institutional adoption, and developments in Japan’s crypto landscape.
Events
Singapore Fintech Festival (Singapore 6-8 November 2024)
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GeckoCon (Bangkok, 11 November 2024)
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[Redacted] (Bangkok, 9-11 November 2024)
The [REDACTED] conference is bringing together the brightest minds in technology for a transformative three-day event from November 9-11, 2024, at the Avani Riverside hotel. This gathering will take place just ahead of Devcon and promises to be a pivotal moment for the convergence of artificial intelligence and Web3.
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Devcon (Bangkok, 12-15 November 2024)
Following Devcon Bogota in 2022, the Ethereum Foundation is set to host Devcon SEA, the 7th edition of its premier developer and community conference.
This landmark event is expected to bring together a diverse group of individuals, including developers, researchers, academics, and community members, to explore the future of Ethereum and its potential to reshape society.
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Consensus (Hong Kong, 18-20 February)
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