Original author: James Hunt
Original translation: Vernacular Blockchain
The day of the U.S. elections has arrived, and the 24/7 trading nature of the cryptocurrency market has an advantage over traditional market hours. Kaiko's analysts outlined three key indicators to watch as election results are announced.
1. Tick-by-tick trading data
First, observing tick-by-tick trading data on major platforms can provide insights into the movements of "smart money." By calculating cumulative volume delta (CVD) from tick-by-tick trading, one can measure net buying and selling activities across global crypto trading platforms. Kaiko analyst Adam Morgan McCarthy stated that this indicator provided valuable insights during the presidential debate between Trump and Kamala Harris and is expected to be relevant again during the elections. During the debate in September, CVD turned negative, indicating the market reacted bearishly to Trump's performance, as compared to Harris, who was seen as less friendly towards the crypto industry, while Trump demonstrated clear support for it.
CVD on Coinbase during presidential debates
Image source: Kaiko
Analysts explained that by separating tick-by-tick trading into buys and sells, one can observe the strong selling pressure resulting from the market's real-time reaction to Trump's performance. This helps grasp market timing, showing when buying and selling pressure weakens and providing clues about participant expectations.
BTC buy and sell on Coinbase during presidential debates
Image source: Kaiko
2. Funding rate
According to Kaiko's analysis, the second indicator to watch is the funding rate, as leveraged traders are very sensitive to sudden changes, which can lead to market squeezes or chain liquidations, whether up or down.
A higher funding rate often indicates increased speculative activity in Bitcoin perpetual contracts. In March, when Bitcoin broke through $73,000 to set a new all-time high, the funding rate surged above 0.05%. However, McCarthy stated that last week, when Bitcoin approached the same level, the funding rate remained around 0.01% on the two largest perpetual contract platforms, BN and Bybit, indicating a decline in trader confidence ahead of the elections.
BN adjusts the funding rate every eight hours, with the initial adjustment time at 12 PM Eastern Time, followed by an adjustment at 8 PM after voting ends on the East Coast. The next adjustment will occur at 4 AM Eastern Time on Wednesday, when election results may become clearer.
3. Implied volatility
Lastly, implied volatility (IV) is also a key indicator in the derivatives market, showing how participants price risk. IV is a forward-looking indicator that predicts the expected volatility of an asset over a given time frame, aggregating multiple data points into a single number, allowing traders to assess whether options are relatively cheap or expensive.
Monitoring the IV term structure helps traders anticipate potential market risks. An inverted IV term structure, where short-term IV is higher than long-term IV, typically signals an impending risk event, such as the U.S. elections, explained Kaiko analysts.
Recently, Bitcoin's rally has approached historical highs, causing short-term IV to spike, catching traders off guard and prompting them to adjust their positions. This change affected the IV smile—a pattern showing higher implied volatility for options that are slightly above or below the current price. A right-tilted IV smile indicates market expectations of price increases, while a left tilt suggests concerns about potential price declines. The recent changes highlight how traders hedge against expected price volatility, he added.
Bitcoin implied volatility before the U.S. elections
Image source: Kaiko
Ultimately, the market is driven by supply and demand and influenced by participant behavior, but McCarthy noted that the accuracy of predictions regarding these trends remains uncertain, as traders are not infallible.
4. Discrepancies between prediction markets and polls arise in situations of uncertain outcomes.
Currently, Trump's probability of winning on the decentralized platform Polymarket is 62%, while Harris is at 38%. The platform has seen a trading volume of $3.25 billion on presidential election outcomes, making it the largest prediction market to date. On the regulated Kalshi platform, Trump’s odds are 57%, while Harris is at 43%. However, Bernstein analysts noted on Monday that the average results of national polls are still close, with Harris leading by 1%, within the margin of error.
Kaiko had previously pointed out that the level of open contracts on Polymarket indicates that the platform lacks sufficient liquidity for betting on the U.S. elections, and its predictive capability is also in question. Analysts from crypto trading firm and market maker GSR mentioned this week that others pointed out that the performance of prediction markets in elections varies, as large players may distort the market, or there may be potential biases due to the dominance of male, crypto-native users and non-U.S. traders on the platform.
However, after the odds of the two candidates briefly converged over the weekend, Gautam Chughani, head of Bernstein's digital asset division, stated, "For those who believe that Polymarket data is manipulated by Trump bias, we believe that the weekend trading data is sufficient to prove it operates like any public market, and traders are easily spooked by gradually increasing polling data."
Additionally, supporters of prediction market accuracy believe that the focus on voter polling rather than electoral college votes, as well as the use of retrospective polls in election models, are key factors. They also emphasize that the odds in most betting markets are similar to those on Polymarket, indicating a low likelihood of market manipulation. GSR also noted that academic research shows prediction markets are often more accurate than surveys or expert opinions, as transparency, collective wisdom, and market dynamics drive odds toward accuracy.
Kaiko pointed out that Pennsylvania, North Carolina, Georgia, Michigan, Wisconsin, Arizona, and Nevada are key states to watch on election night, particularly Pennsylvania. If Harris loses its 19 electoral votes, based on some polls, the path to the White House could become exceptionally difficult, if not nearly impossible.
Currently, on Polymarket, Trump is leading in Arizona, Georgia, Nevada, North Carolina, and Pennsylvania, while Harris is leading in Wisconsin and Michigan.
5. Expected impact on Bitcoin's price
Amberdata's derivatives chief Greg Magadini stated in an interview with The Block that he expects Bitcoin's price to fluctuate by $6,000 to $8,000 post-election; if Harris wins, it could drop to around $60,000; if Trump wins, it could break through $75,000, setting a new all-time high.
BRN analyst Valentin Fournier also agreed, forecasting Bitcoin's price volatility post-election to be around 10%. If Trump wins, it is expected to have a positive impact; if Harris wins, a price correction could occur. "However, regardless of the election outcome, Bitcoin's mid-to-long-term outlook remains positive," Fournier noted.
On Monday, Bernstein analysts stated that they expect Bitcoin to reach $80,000 to $90,000 before Trump’s inauguration on January 20, but they also warned that if Harris wins, Bitcoin could drop to $50,000 during the same period, before recovering later.
According to The Block's Bitcoin price page, the current trading price of Bitcoin is $68,828. Over the past week, Bitcoin has dropped about 4%, but it has risen 63% since the beginning of the year.
Meanwhile, the GMCI 30 index, representing 30 major cryptocurrencies, has dropped about 7% over the past week, currently at 120.08, but has risen about 21% in 2024.
