(Kitco News)—Financial markets started the week subdued as traders limited their activity ahead of tomorrow's election in the U.S. The outcome is still too close to call and is expected to lead to volatility, especially if it takes an extended period of time to announce a winner.
Stocks declined at the market open but have since climbed back to even, while Bitcoin (BTC) and gold enjoyed slight gains after rallies during overnight trading provided a boost.
“The crypto market lost 1.7% of its cap in 24 hours to $2.24 trillion,” noted Alex Kuptsikevich, chief market analyst at FxPro. “The market is correcting as Trump's chances of winning national polls diminish ahead of the election. For now, it looks like a de-risking ahead of an important event where both major candidates have roughly equal chances of winning.”
“The price of Bitcoin has fallen back below $68.5K and was bottomed out at levels $1K lower on Sunday,” he added. “The pullback has not yet broken the overall bullish pattern that has been forming since September. We will be able to talk about the bears' clear superiority when the price breaks below $65K, which would be a failure below the local lows from the end of last month and the 50-day moving average.”
BTC/USD Chart by TradingView
“The situation is gloomier for Ethereum (ETH), which has been losing for the fifth day in a row, falling back to $2450—the lowest of the last three weeks,” Kuptsikevich noted. “It is below the 50-day moving average and generally near the lower end of its trading range since August.”
According to Maria Carola, CEO of cryptocurrency exchange StealthEX, the subdued market action on Monday is the calm before the storm as volatility is expected to increase after the election.
“BTC is unlikely to see a rise in volatility ahead of the election, but volatility could increase after the US presidential election, especially if the results are controversial,” she said in a note to Kitco Crytpo. “Many polls show Trump and Harris in a close race, which could lead to the election results becoming contentious and litigated. Locally, a news story along the lines of ‘Harris leads Trump in swing states in latest polls’ could easily push the crypto down.”
Carola noted that “During periods of heightened uncertainty, trading volumes in highly volatile assets often increase, which plays into the hands of derivatives traders. Given its historical price swings, Bitcoin could become a favorite asset for options traders looking to capitalize on potential price swings.”
“Historically, Bitcoin futures and options volumes have grown during periods of increased market volatility, as was the case during the bull market from late 2020 to early 2021,” she added. “For experienced traders, the controversial election results are a great opportunity to exploit Bitcoin volatility, which will attract attention to the cryptocurrency around the world.”
As a result of the increase in action from derivatives traders, Carola warned that “A further correction in Bitcoin is possible immediately before the elections.”
“Cryptocurrency traditionally shows a decline before the US elections,” she noted. “In 2016, the decline was 10.2%, in 2020 — 6.1%, and now we are seeing a decline of 6.3%. However, the statistics show an interesting pattern - after each election, there was impressive growth. After the 2016 elections, the price soared to $1,110, and in 2020, Bitcoin set a historical record, exceeding $40,000.”
“In the coming week, the markets' attention will be focused on two key events: the US presidential election on Tuesday and the Fed meeting on Thursday,” Carola highlighted. “The rate is expected to be cut from 5.00% to 4.75%. Other important events will include the publication of data on the US trade balance and the ISM service index on Tuesday, labor market data on Thursday before the Fed meeting, and the publication of the consumer sentiment and inflation expectations index from the University of Michigan on Friday.”
“The week will end with a speech by FOMC member Bowman with comments on monetary policy,” she added. “Key events of the week also include the Chinese government meeting, from which investors expect information on new monetary stimulus packages. However, the situation in the US will remain decisive for crypto assets.”
While the U.S. election is expected to dominate the headlines this week, Andre Dragosch, Head of Research at Bitwise Europe, said Bitcoin’s correlation with stocks and gold is a more important metric for investors to keep an eye on.
“Correlations of cryptoassets like Bitcoin to US presidential election odds have increased lately,” he wrote. “However, ‘macro correlations’ to traditional assets like US stocks or gold still remain higher.”
That said, market analyst Moustache remains bullish on Bitcoin following the election, noting that King Crypto “has ALWAYS broken out to new highs AFTER the US elections.”
At the time of writing, Bitcoin trades at $68,290, an increase of 0.25% on the 24-hour chart.
