Countdown to the U.S. Election
The U.S. presidential election remains intense, marking one of the most closely contested elections in history. Markets are betting on different outcomes, with U.S. Treasuries shifting toward a “Kamala Harris bet” at the last moment, 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 minute. Options, futures, and cash positions all turned bullish, increasing bets that Kamala Harris might win the election.
Bitcoin, on the other hand, continued to support Trump, with its gains expanding by over 2% on Wednesday, currently priced at $71,033, marking the largest weekly gain.
Analysts believe that bonds fear a Republican sweep the most, as Trump would advance tax cuts and tariff plans, expand fiscal deficits, and restart an era of inflation, which would push up the 10-year U.S. Treasury yield.
Cryptocurrencies, however, could potentially win in both scenarios. Trump is undoubtedly a supporter of cryptocurrencies, but Kamala Harris has also hinted that she will not continue Biden’s strict crackdown on the industry.
U.S. Treasuries Shift Toward “Kamala Harris Bet”
U.S. Treasury investors are heavily entering trades that could profit from a rise in U.S. 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 dominated by short-term bullish bets. Weekend polls showed Harris gaining an edge over Trump, prompting traders to prepare for a possible Harris victory.
This shift was also evident in the futures market, with new long bets appearing on Monday, including a significant increase in demand for longer-dated bonds. As of the week ending October 29, asset managers’ net long positions increased by approximately 182,000 10-year Treasury futures.
Additionally, JPMorgan’s latest client survey shows that net long positions in U.S. Treasuries are at their highest in about three months, further indicating a shift in market sentiment.
These moves mark a shift among traders who had partially established bearish positions in anticipation of a Trump victory. However, with polls showing a deadlock in the race, investors are now preparing for the opposite possibility in the election outcome and bracing for market volatility.
Bitcoin Continues to “Back Trump”
Bitcoin’s gains expanded by over 2% on Wednesday, currently priced at $71,033, marking the largest weekly gain and less than 5% below the record low set in March.
Bitcoin’s rise is considered a “Trump trade” due to Trump’s support for digital assets.
Trump has vowed to make the U.S. the global cryptocurrency capital if he returns to the White House, establishing strategic Bitcoin reserves and appointing regulators who favor digital assets, signaling himself as the most industry-friendly candidate. Harris, on the other hand, has taken a more cautious approach, promising to support a regulatory framework for the industry.
Bonds Fear a Sweep, Cryptocurrencies Could Win Either Way?
Overall, the bond market fears a Republican sweep the most, whereas cryptocurrencies are expected to perform well regardless of the outcome.
Analysts believe that a Republican landslide is seen as a “clear threat” to bond buyers. Under a unified Republican government and Congress, Trump would advance tax cuts and tariff plans, expand fiscal deficits, and restart an era of inflation. This would push up the 10-year U.S. Treasury yield, and the bond market could see further declines.
On the other hand, if Kamala Harris wins with a split Congress, it could trigger a relief rally, increasing the likelihood of a stalemate, which could control government spending.
Almost every other scenario is contentious. JPMorgan strategists predict that a unified Democratic government and Congress would lead to increased government spending, pushing up bond yields. However, RBC Capital argues that this scenario is most favorable for bonds, as it would lead to corporate tax hikes, exacerbate an “anti-business” environment, and weaken risk appetite.
In the cryptocurrency sector, analysts believe Bitcoin could benefit from a Trump victory, as Trump is an avid supporter of cryptocurrencies, pledging to establish strategic reserves of original cryptocurrencies and appoint industry-friendly regulators. However, a Harris victory may not necessarily be detrimental to the industry, as she has hinted at not continuing Biden’s strict crackdown.
In the short term, the optimistic sentiment among cryptocurrency investors may have been partially absorbed by the market. Bitcoin prices have once again surpassed the $70,000 mark, and Bitcoin exchange-traded funds have seen the largest inflows to date. With the competition still too close to call, demand for hedging in the cryptocurrency options market has significantly increased.
Bloomberg statistics show that on Monday, net outflows from 12 Bitcoin ETFs managed by companies like BlackRock and Fidelity reached a staggering $579.5 million, a historic high. Options pricing suggests that the expected market volatility for Bitcoin on the day after the election will reach 8%.
Additionally, options traders are prepared for significant future gains. According to data from Deribit, the largest cryptocurrency options exchange, the largest open interest for contracts expiring in March is concentrated around strike prices of $100,000 and $110,000.
This article is reprinted in collaboration with Deep Tide Insights.
