QCP U.S. Election 2024 Commentary

The day has finally arrived. Across stocks, Treasuries, and crypto, market anxiety is palpable ahead of what promises to be one of the closest U.S. presidential races in history.

The “Trump trade”—encompassing long positions in the dollar, crypto, and bets on higher Treasury yields—has gained traction leading up to the election, buoyed by Trump’s lead in prediction markets. However, a Harris victory could potentially reverse these gains, triggering significant market swings overnight.

The crypto market is currently pricing in a +/-3.5% in BTC spot movement on the election night itself. Yet, traders may be underpricing post-election risk: the current lack of volatility premium beyond the November 8 expiry suggests that  markets expect a quick resolution, possibly underestimating potential delays or contested outcomes.

Volatility is almost certain…

Recall that in 2016, when Trump claimed a surprise victory, U.S. futures initially plunged before rebounding, with the two following days marking the most active trading of that half-year. Similarly in 2020, the race wasn’t officially called for Joe Biden until four days later, causing trading volume to spike to a six-month high.

Possible Permutations

The outcome of the congressional races could be just as influential as the presidential result. A Republican sweep may indicate higher future fiscal deficits, likely prompting a more hawkish Federal Reserve—an unfavorable scenario for risk assets. Conversely, a divided legislature could lead to calmer markets and volatility tapering off.

Implications for Crypto

Currently, the options market shows balanced skew between calls and puts, with the desk observing heavy buying in both topside calls and downside puts over the past few days.

Nevertheless, Bitcoin continues to be viewed as a “Trump trade”. BTC spot prices dropped amid significant outflows from spot ETFs on Monday, coinciding with a poll showing Harris’s narrow lead in Iowa. As poll results begin to roll in tomorrow, we anticipate BTC spot to experience erratic swings.

Buckle up.