The global financial market braces itself as election week finally knocks in. The cumulative digital assets market saw a marginal decline as Bitcoin (BTC) failed to hodl on to the crucial $70,000 price level in line with fluctuating prediction market in the US.
Going into Election Day, financial markets prepare for high uncertainty, and historically, returns recorded before and after Election Day have shown high differences. The election-winning odds have changed drastically over the last week, but still, the Republican Presidential candidate Donald Trump is leading the way over Kamala Harris.
Traders brace for election volatility
Options traders across equities, bonds, currencies, and crypto are preparing for potential turbulence. October saw rising equity options volatility even as actual market swings stayed muted. This rise reflects an anticipation of the tight race between Kamala Harris and Donald Trump, earnings season, and a pending Fed rate decision.
Polymarket suggests that Trump holds 56% odds of winning the Presidential elections in front of Harris, who registered a major comeback for the Democrats. However, Kalshi shows a similar but hard contest as Republicans’ Trump is moving ahead with a 51.7% chance of coming back to the White House.
Source: Polymarket
The same is reflected in the market as yields have increased following the Fed’s rate cuts in September. Investors have shifted positions, adding hedges for tail risks, and anticipating potential rate hikes or economic surprises.
Uncertainty over trade and tariff policies has currency traders preparing for wider swings, particularly with the yuan, Mexican peso, and euro showing increased implied volatility.
Crypto market ready for a post-election boom?
Crypto options trading shows a hedged approach ahead of the election. Short-term put volatility has jumped, while call options remain stable, hinting at caution. Despite the short-term caution, longer-term indicators, like Bitcoin futures on CME, suggest a bullish outlook post-election. Traders foresee possible rate cuts and crypto-friendly policy changes in 2025.
The crypto market is getting ready for the most volatile week but this rally might be here to stay. History recommends that the real bull run begins post-election and who will win the elections might not affect the Bitcoin price surge ahead.
Coinglass data shows that Bitcoin futures open interest (OI) jumped by 0.65% in the last 24 hours to stand at $39.81 billion. Bitcoin price jumped by more than 10% in the last 30 days and went on to hit $73,000 too. Meanwhile, the ongoing slump has moved it to drop to the $68,700 zone.
Will history repeat?
According to the Kobeissi letter, 83% of election years saw positive returns in the lead-up to Election Day, with a median return of 4.7%. Stocks tend to perform 4.2% better on average in the six months before an election compared to non-election years.
Returns tend to soften after Election Day, with only 67% of election years showing gains. The median post-election return is 3.7%. On average, the S&P 500 performs 1.4% worse in the six months after elections compared to non-election years.
Elections held during recession years heavily favor challengers. Over 60 years, only once (in 1948) did the incumbent party win during a recession. If current economic conditions are recessionary, this could spell trouble for the incumbent Democrats.
