Countdown to the U.S. Election
The U.S. presidential election remains intensely competitive, making it one of the most evenly matched elections in history. Markets are betting on different outcomes, with U.S. Treasury bonds showing a last-minute shift towards Kamala Harris, while Bitcoin continues to back Trump.
On Wednesday, as the U.S. election entered the vote-counting phase, bond market traders increased their bullish bets on U.S. Treasuries at the last moment. Options, futures, and cash positions all turned bullish, increasing the stakes on Kamala Harris potentially winning the election.
Bitcoin, on the other hand, continues to support Trump. Bitcoin rose by over 2% on Wednesday, currently trading at $71,033, maintaining its largest weekly gain in a week.
Analysts believe that bonds fear a Republican sweep the most, as Trump would push forward tax cuts and tariff plans, expanding the fiscal deficit, and reigniting an era of inflation, which would drive up the 10-year U.S. Treasury yield.
Cryptocurrencies, however, could potentially benefit regardless of the outcome. Trump is undoubtedly a supporter of cryptocurrencies, but Harris has also hinted that she would not continue Biden’s stringent crackdown on the industry.
U.S. Treasuries Shift Towards “Betting on Kamala Harris”
U.S. Treasury investors are heavily entering trades that could profit from a rise in Treasuries, believing this scenario is more likely if Kamala Harris wins the election, while reducing bets on a Trump victory.
Since Monday, U.S. options activity has been predominantly in favor of short-term bullish bets. Weekend polls indicated that Harris gained an advantage over Trump, prompting traders to prepare for a potential Harris victory.
The futures market has also seen this shift, with new long bets appearing on Monday, including a significant increase in demand for longer-term bonds. As of the week ending October 29, net long positions held by asset management companies increased by about 182,000 10-year Treasury futures.
Additionally, the latest client survey by JPMorgan shows that the net long positions in U.S. Treasuries are at their highest in about three months, marking another sign of a shift in market sentiment.
These moves indicate a shift among traders, who had partially established bearish positions in anticipation of a Trump victory, but now, as polls show the race is deadlocked, investors are preparing for the possibility of an opposite outcome and are bracing for market volatility.
Bitcoin Continues to “Support Trump”
Bitcoin’s gains expanded by over 2% on Wednesday, currently trading at $71,033, maintaining its largest weekly gain, less than 5% below the record low set in March.
Due to Trump’s support for digital assets, Bitcoin’s rise is considered a so-called “Trump trade.”
Trump has vowed that if he returns to the White House, he will make the U.S. the global cryptocurrency capital, establish strategic Bitcoin reserves, and appoint regulators who favor digital assets, signaling that he is the most industry-friendly candidate. Harris, however, has taken a more cautious approach, pledging to support a regulatory framework for the industry.
Bonds Fear a Sweep, Cryptocurrencies Win Either Way?
Overall, the bond market fears a Republican sweep the most, while cryptocurrencies are expected to perform well in any scenario.
Analysts believe that a Republican landslide is seen as a “clear threat” to bond buyers. With a unified Republican government and Congress, Trump would push forward tax cuts and tariff plans, expanding the fiscal deficit, and reigniting an era of inflation. This would drive up the 10-year U.S. Treasury yield, and the bond market may decline further.
On the other hand, if Harris wins with a divided Congress, it could trigger a relief rally, increasing the possibility of a gridlock, which could control government spending.
What happens in other scenarios is almost universally debated. JPMorgan strategists expect a unified Democratic government and Congress would lead to increased government spending, thereby raising bond yields. However, RBC Capital argues that this scenario is most favorable for bonds, as it would lead to corporate tax hikes, exacerbate an “unfavorable business” environment, and weaken risk appetite.
In terms of cryptocurrencies, analysts believe Bitcoin stands to benefit from a Trump victory, as Trump is an active supporter of cryptocurrencies, stating his intention to establish strategic reserves of the original cryptocurrency and appoint industry-friendly regulatory agencies. However, a Harris win may not necessarily be detrimental to the industry, as she has hinted that she would not impose the same stringent crackdown as Biden.
In the short term, cryptocurrency investors’ optimism may have already been partially priced into the market. Bitcoin prices have once again surpassed the $70,000 mark, with Bitcoin exchange-traded funds receiving their largest inflows to date. Coupled with the ongoing fierce competition, the demand for hedging in the cryptocurrency options market has significantly increased.
Bloomberg statistics show that on Monday, 12 Bitcoin ETFs managed by companies like BlackRock and Fidelity saw a record net outflow of $579.5 million. Options pricing suggests that on the day after the election, Bitcoin’s expected market volatility will reach 8%.
Moreover, options traders are already preparing for significant future profits. According to data from Deribit, the largest cryptocurrency options trading platform, the largest open interest for contracts expiring in March is concentrated around strike prices of $100,000 and $110,000.
This article is reproduced in cooperation with: Deep Tide