With just one week left before the election, the “Trump” trade is sweeping the crypto market

There is only one week left before the election.

The US election is approaching. As of the afternoon of October 27, local time, more than 41 million voters in the United States have voted in advance for the 2024 presidential election. Affected by this, the volatility of the crypto market has also increased day by day. Stimulated by the "election transaction", Bitcoin took the lead in starting the rally and returned to the long-lost $71,000 this week. The crypto sector has risen, and the MEME market is even more intoxicated by PolitiFi.

Back to the two candidates, Harris and Trump are increasingly competing. Due to the poor handling of Hurricane Milton and the conflict between Iraq and Israel, Harris's support rate has dropped rapidly. Trump has successfully overtaken her. Not only has his advantage in gambling odds and swing state polls continued to expand, but he is also closely following in traditional ordinary polls. From the current situation, Trump seems more likely to become the next US president, and Trump's transaction is therefore imminent.

Looking back at the policy strategies of both, the general direction is to use government subsidies as a starting point, and the core purpose is to promote capital repatriation, but the two methods are slightly different. Trump uses tax cuts to promote the development of private enterprises, while Harris tends to directly subsidize residents with money. The capital repatriation is also different. Harris inherited Biden's ruling ideology and focused on key core industries such as chips and new energy; Trump still adheres to the proposition of radical tariffs and America first.

In the current situation, Trump has a higher chance of winning, and the financial market naturally pays more attention to his policy propositions. Specifically, citing CICC's point of view, domestic tax cuts, external tariffs, relaxation of regulations, expulsion of illegal immigrants, encouragement of fossil energy, emphasis on science and technology, and diplomatic isolationism are Trump's main governing directions. Combined with the superposition of the governing directions, Trump's coming to power may bring about the upward risk of inflation. Under this influence, the Federal Reserve may take measures to slow down the pace of interest rate cuts and regulate higher terminal interest rates. From the perspective of the capital market, if the economic resilience is maintained, a soft landing will benefit US stocks, cyclical products and Bitcoin, but in extreme cases, inflation will suppress the capital market, and anti-cyclical products such as gold will benefit.

Estimation of the impact of Trump's policies on the US economy, source: CICC Research Institute

Here we can refer to the 2016 US election, when the market also triggered Trump's transactions, especially after his victory in November 2016, optimistic expectations rose sharply. US Treasury bond interest rates rose from 1.7% to 2.6% in one month, and the US dollar index also broke through 103 from 97. From the perspective of US stocks, the three major indexes rose by 10% during this period. Looking at commodities, inflation expectations pushed copper and crude oil up sharply, while gold reversed and fell 3% within a month after the election.

Source: Bloomberg, CICC Research Department

It is obvious that Trump's victory in 2016 can be called a black swan event, but at present, the capital market has already priced his victory. The more prominent variety is undoubtedly cryptocurrency. Since Trump has endorsed encryption in public many times before, and recently launched a family encryption project, the encryption market has high hopes for it.

From the perspective of the encryption prediction market Polymarket, the amount of bets has exceeded US$2.1 billion, and Trump's winning rate has reached 66.2%, far exceeding Harris by 33 percentage points, and the gap is still widening. The Bitcoin market has responded strongly to this. As the election approaches, Bitcoin continues to rise and has now reached above US$71,000. Among them, expectations are undoubtedly one of the reasons for the rise.

How will Bitcoin and the crypto market go before and after the election? Major institutions and analysts have also had heated discussions on this.

Traders generally believe that the election is an important trading opportunity, and they are betting on a rebound in the election. According to Matrixport data, the US election is igniting market sentiment, and the funding rate of Ethereum perpetual futures has hit its highest level since May 2024, highlighting the strategy of buying on dips.

Top trader Eugene Ng Ah Sio also spoke on social media, believing that the positioning has been basically clear, and the upward trend has opened after the election. He also emphasized that the speculative long positions in October have been basically wiped out, and the vast majority of people will avoid risks a week after the election. SOL is a clear asset choice.

Derivatives have reached similar conclusions. Deribit CEO Luuk Strijers said derivatives traders are positioning for a bullish move in Bitcoin in the days after the U.S. election on November 5. For options expiring on November 8, open interest is worth more than $2 billion, with major strike prices of $70,000, $75,000 and $80,000, and the put/call ratio is 0.55, indicating that the number of open calls is twice the number of puts. Forward IV has a clear lift compared to Mark IV, especially during election week, suggesting that traders expect higher volatility. The forward implied volatility is 72.29%, suggesting that prices could move about 3.78% in the days after the presidential election. And demand for calls is strong relative to puts, with investors less concerned about managing downside risk.

Institutions are also more optimistic. Just half a month ago, Standard Chartered Bank, which has always been known as outrageous by the market, said that Bitcoin is showing strong upward momentum and may approach the historical high of $73,800 on the day of the US election. It believes that the factors driving Bitcoin's rise include the steepening of the US Treasury yield curve, the inflow of funds from the spot Bitcoin ETF, and the increase in Trump's chances of winning. Judging from the current Bitcoin price, Standard Chartered may be correct for once.

Matthew Sigel, head of digital asset research at VanEck, also made a prediction in an interview, saying that investors are preparing for the US election. He mentioned that this election will continue a similar path in 2020. After a short period of fluctuations after the winner is announced, Bitcoin will start to rise, and Trump has a higher chance of winning. Bernstein also reiterated that if Trump wins the US election next month, the price of Bitcoin may reach a record high of $80,000 to $90,000.

In response, hedge fund manager Paul Tudor Jones said that he did not need to limit himself to the presidential candidate. He believed that no matter who ascended to the presidency, the policies adopted would be "all roads lead to inflation", which would further drive up the prices of BTC and other commodities.

Bitfinex added a quarterly factor to the election, believing that Bitcoin will experience turbulence in the coming weeks. Election uncertainty, the "Trump trade" narrative, and historically favorable fourth quarter conditions will create a perfect storm for market trends. The report released by Bitfinex shows that options expiring on key dates before and after the election have higher premiums, and implied volatility is expected to reach a peak of 100-day volatility on November 8, shortly after the election day. Looking at the fourth quarters of previous years, the fourth quarters of halving years all ended with gains, with a median quarterly return of 31.34%, which may push Bitcoin to or even exceed its historical highs after the election.

Of course, although most institutions and traders are optimistic, some analysts believe that betting on short-term fluctuations is short-sighted. Jean Boivin of BlackRock Investment Institute mentioned that the market underestimated the risk that some of the US presidential candidates would object to the election results next month, and a controversial election victory would usually lead to weeks of legal battles, and risky assets would also be affected.

Copper analysts directly pointed out that the market may be at a temporary top before the US election because according to Bitcoin on-chain data, 98% of short-term holders' wallet addresses are now in profit. Historically, when this ratio rises sharply, investors want to lock in profits, so there is often rapid selling pressure.

Looking at the entire crypto market, it can be seen that market sentiment has not changed, but the macro factors affecting the performance of cryptocurrencies are shifting from monetary policy to the results of the US election. The crypto market prefers Trump, who is showing goodwill, and Trump's policy propositions will also push up US stocks with strong correlation with Bitcoin to a certain extent. Therefore, many analysts predict that Bitcoin is expected to break new highs in this trading cycle.

Even if the crypto field is excluded, in other financial sectors, the market has revealed similar signals since the probability of Trump's victory increased in September. Given Trump's more radical tariff policy, he has claimed that he may impose an indiscriminate 10% base tariff on all goods entering the United States and impose 60% or higher tariffs on China. The exchange rates of the RMB, Mexico and Vietnam have weakened recently. In the traditional energy field supported by Trump, according to data from CICC Research Department, as of October 24, oil and gas energy has risen by 5.8% since September 26, while the clean energy index has fallen by 9.4%. In terms of social media, since September 23, Trump Media & Technology Group (DJT) has risen by an astonishing 289.79%, and the trend of betting is obvious.

Of course, it only reflects the market's pre-election trading. Expectations are an important part of the current situation, but this means that expectations have also been taken into consideration, and there is a high probability of a short-term decline after the expectations are implemented. On the other hand, even if Trump comes to power, his policies must take into account the House of Representatives, which dominates fiscal and taxation policies, otherwise he will face constraints on his policies after taking office, just like Biden. However, according to the latest poll by the senior political observation website 538 (fivethirtyeight), Trump's chances of winning this year's presidential election have risen to 53%, while the Republican Party has an 87% chance of taking the Senate majority from the Democratic Party, and the Republican Party has a 53% chance of continuing to hold the majority of seats in the House of Representatives, and the probability of the Republican Party winning a full victory has increased again. In this sense, the current competitive pressure on the Democratic Party has reached its peak, both in the White House and in Congress.

In any case, the violent fluctuations before and after the US election are inevitable, and any betting group on trading opportunities should remain vigilant. For the election, the winner will never be determined until the end, and even if the voting is completed, the validity of the results will not stop.

Perhaps the most active crypto markets during this period can only be Bitcoin and MEME.