US Election fever, are crypto traders bracing for a wild ride?

With the US November elections coming in, crypto is making headlines like never before. This year’s campaign marks the first time digital assets are a prominent policy issue.

Back in 2020, BlackRock’s Larry Fink called Bitcoin an “index for money laundering,” and now he’s among its advocates, promoting Bitcoin’s benefits and Ethereum’s potential to investors.

As election day nears, institutional trades on Deribit are flashing bullish positioning on crypto options. This signals an expected post-election gain.

While derivatives and options data suggest short-term volatility, smart money sees the race’s outcome as a long-term crypto catalyst, keeping aside who the winner is.

Are Polymarket’s betting odds fair?

Bettors are flocking to Polymarket to wager on the next US president; questions arise about the platform’s efficiency. How reliable are its odds, especially for Donald Trump? The former President is leading the winning odds by holding the numbers at approx. 64% against Kamala Harris.

Meanwhile, Polymarket isn’t available in the US, which suggests that the current odds don’t reflect the regions’ voter sentiment. A recent analysis found that a whale backing Trump is a French national.

Market odds and polls serve different purposes. Polymarket odds aim for winner prediction, unlike polls that measure voter intent. This creates differing incentives, indicating that Polymarket users care less about margins.

We just released the first part of our US election coverage ????????

In this Deep Dive we look at positioning in $BTC markets ahead of the election and how crypto has become a talking point for the first time.

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— Kaiko (@KaikoData) October 24, 2024

Since launching its presidential market in January, Polymarket has seen over $2 billion in trading volume, but open interest never exceeded $250 million. This liquidity issue raises questions about its predictive value.

National polls tell a different story. The FiveThirtyEight average shows Kamala Harris leading Trump by just under 2%. Most reputable polls align closely, suggesting a tightly contested race. 

Traders eye $100K strikes ahead of elections

The crypto derivatives market is buzzing as options volumes on Deribit are rising, hinting at trader sentiment leading up to November.

Kaiko reports that the trading activity is peaking around late October and early November, with December 27 expiries also gaining traction. Traders seem to be optimistic and targeting $100k strikes for potential upside post-election, regardless of the winner. 

Kaiko reported that analysis of block trades reveals institutional interest, with large orders executed privately. This reflects confidence in market movements without major price impacts.

Between Monday and Tuesday, intense activity was noted for the October 25 contracts. However, bullish volumes can be seen on the November 29 contracts which includes 550 contracts at a $76k strike.

Launched in August, Deribit’s US election contract, expiring on November 8, has seen $3 billion in volume. Most bets lean bullish around the $65k to $80k range. This contract expires just after the election and the Fed’s meeting, both events are anticipated to cause higher market volatility.

It mentioned that a popular approach for the November 8 expiry turns out to be the long strangle strategy of buying both a call and a put. This tactic aims to capture large price movements and makes it ideal for an environment ripe for volatility.

The cumulative crypto market cap stands at $2.31 trillion, with Bitcoin (BTC) hovering around the $68,000 zone. BTC has gained 60% on a year-to-date basis and is trading at an average price of $67,800 at press time.