Bitcoin's (BTC) Unwind From Near Record High Coincides With A Pullback In The Chances Of A Donald Trump Win

The top token has crashed since rallying to within $234 of March's all-time high of $73,798.

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