(Kitco News) – Financial markets were relatively flat on the eve of the U.S. presidential election as traders braced for a predicted wave of volatility, with polls showing the election remains too close to call. And if that isn’t enough, Thursday’s interest rate decision from the Federal Reserve also has investors cautious about their exposure to the markets.
“Market volatility has surged across both cryptocurrency and traditional sectors,” noted analysts at Secure Digital Markets. “The Deribit Bitcoin volatility index has reached heights not seen since late July, as traders anticipate increased fluctuations post-election. Similarly, the MOVE index, which tracks the implied volatility of U.S. Treasury notes, escalated to its peak since October 2023 last Friday.”
“Additionally, the financial markets are on alert for the Federal Reserve's upcoming interest rate decision,” they added. “Market consensus currently shows a 96% expectation of a rate reduction at this week's Fed meeting. The key consideration for traders will be whether the Fed opts for a cut of 25 basis points or 50 in December, heavily influenced by forthcoming economic indicators. Investors will be keenly awaiting remarks from Fed Chair Jerome Powell for further guidance on the central bank's prospective monetary policies.”
Stocks finished the day in the red, with the S&P, Dow, and Nasdaq closing down 0.27%, 0.60%, and 0.32%, respectively.
Gold rallied to a high of $2,748/oz in the early hours on Monday, but the gains moderated as the day progressed and traders reduced their exposure to the markets. At the time of writing, spot gold trades at $2,736.10 for a gain of 0.02% on the session.
Data provided by TradingView shows that Bitcoin (BTC) traded above $68,500 in the morning but fell under pressure in the afternoon, with its price hitting a low of $68,875 as bears look to retest support at $66,000.
BTC/USD Chart by TradingView
“Bitcoin and other cryptocurrencies experienced a downturn over the weekend as market participants prepared for the upcoming U.S. presidential election,” Secure Digital Markets analysts said. “The crypto market's movements appear closely linked to these election odds, with traders taking a cautious approach until the political landscape becomes more transparent.”
“As we move into the week, Bitcoin has retreated to its 20-day moving average, eyeing the 50-day average around $65,000, which aligns with a supportive trend line from August,” they added. “Open interest in the futures market has held steady, suggesting a wait-and-see attitude among traders, while spot trading volume has diminished since last Friday. A resurgence in volume will be crucial for signaling a robust recovery.”
At the time of writing, Bitcoin trades at $67,204, a decrease of 2.75% on the 24-hour chart.
Bitcoin and the U.S. election
While the U.S. Presidential election remains too close to call, analysts are certain about one thing: volatility is expected to increase.
“On the eve of election day, markets see a Republican victory as favorable for BTC, while a Democrat win leaves the outlook more ambiguous,” said analysts at Bitfinex. “Average betting odds for a Trump win have fallen from 64.9 percent to 56 percent.”
“Despite a general expectation for heightened volatility leading up to the day of the US elections on 5th November, many market participants seem hesitant to take action, adopting a wait-and-see approach,” they added. “At the front end of the options market, Bitcoin options are trading in the low 40s for implied volatility.”
“Typically, such low volatility levels suggest a lack of market confidence in significant price movements,” they explained. “In contrast, the volatility structure completely changes between November 5th to 8th. This adds confluence to our expectation of significant whipsaw price action during election week without a strong directional move in either direction.”
“Even with last week’s pullback, Bitcoin’s overall resilience since its September low is noteworthy,” the analysts said. “In a nutshell, the current market dynamics point to an electrifying week ahead. Whether you’re a trader, investor, or casual observer, the road to election day promises to be anything but dull for the crypto market.”
“In summary, the current low volatility levels at the front end indicate a cautious market, and as we near the election, a lift in volatility would be desirable to reflect heightened market dynamics. If the expected volatility fails to materialize, it may indicate a more substantial issue at play and a much deeper correction for BTC on the lower timeframes,” they concluded. “In terms of the options market, apathy to price movements often reflects a more bearish sentiment than strong put buying.”
“I expect a +1.5-Sigma ($6k to $8k price range) as a result of the post-election price reaction,” said Greg Magadini, Director of Derivatives at Amberdata, in a note to Kitco Crypto. “Therefore, major price levels are $60k (A Kamala win dip) or a $75k/$77k a Trump win that brings spot right back to the ATHs then THROUGH them, as election enthusiasm breaks the high seen last week.”
“Looking at the fixed strike volatility, we can see a larger negative skew with 60k Nov Puts around 102% IV and 80k at 91%,” he added.
Cory Kippsten, CEO at Swan Bitcoin, also expects volatility to surge since “Bitcoin’s price movements have become increasingly intertwined with the U.S. presidential election, reflecting investor sentiment and expectations regarding future regulatory policies, legal clarity, and Bitcoin adoption by the federal government.”
“The recent surge in Bitcoin's price, which has brought it within striking distance of its all-time high, can be attributed to a combination of investor optimism surrounding the election due to positive engagement from both campaigns and a significant influx of capital into Bitcoin ETFs,” he said.
“Donald Trump has taken a decidedly pro-Bitcoin position, pledging to transform the U.S. into the world's leading Bitcoin hub and even proposing the establishment of a national Bitcoin reserve,” Klippsten noted. “Kamala Harris has adopted a more measured approach, with many in the industry anticipating a period of regulatory clarity and support under her potential administration.”
“A Trump victory would likely result in a short-term price run, possibly surpassing the $80,000 or $90,000 mark,” he predicted. “If Trump makes good on his Bitcoin promises, it could help speed up Bitcoin adoption by individuals, corporations, and even nation-states.”
“A Harris win might result in a more tempered response, with Bitcoin prices likely stabilizing or experiencing more modest gains in the near term,” he added. “A Harris administration is still positive for Bitcoin, likely establishing a welcoming environment with greater legal and regulator clarity.”
Altcoins mixed ahead of the election
Altcoins traded in the red as investors limited their activity until they gain a clearer picture of who the next U.S. president will be.
Daily cryptocurrency market performance. Source: Coin360
OriginTrail (TRAC) was the top gainer, with an increase of 5%, followed by gains of 3.6% and 1.8% for Mask Network (MASK) and Monero (XMR), respectively. A 16.5% pullback by THOREChain (RUNE) led the losers, while Popcat (POPCAT) fell 12.6%, and Ponke (PONKE) lost 12.3%.
The overall cryptocurrency market cap now stands at $2.19 trillion, and Bitcoin’s dominance rate is 60.5%.
