In the coming weeks, the cryptocurrency Bitcoin (BTC) is expected to experience significant volatility. This is due to a combination of factors including the uncertainty surrounding the upcoming United States presidential election, the “Trump trade” narrative, and Bitcoin’s traditional Q4 performance. Analysts from crypto exchange Bitfinex, in a recent weekly report, labeled these converging circumstances as a “perfect storm” for BTC. Despite the impending volatility, exciting times are projected for the leading digital asset, irrespective of prevailing industry narratives.
The U.S. presidential election has been exerting an ever-increasing influence on Bitcoin’s price movements. Members of the crypto community see a Republican victory as a bullish factor for Bitcoin, while a Democratic win is perceived as bearish. This perception arises from the notion that Republican candidate Donald Trump is pro-crypto and has pledged to implement favorable policies for the emerging industry upon his election as president.
In contrast, the Democratic candidate, Kamala Harris, who is currently serving as Vice President, has only recently begun to show a more positive approach towards digital assets, especially as election season heats up. This comes after the current Democratic administration displayed tendencies toward anti-crypto actions.
The wider market consensus anticipates a surge in option premiums and volatility for both the U.S. stock market and Bitcoin soon after the election results are announced in the first week of November. Given the growing correlation between Trump’s electoral odds and Bitcoin’s upward trajectory, the cryptocurrency is expected to experience greater volatility than other risk assets. This perception forms the basis of the “Trump trade” narrative, encapsulating the market’s belief that Bitcoin’s future direction is contingent on the election outcome.
Bitfinex observes, “Regardless of the election outcome, short-term volatility is expected to be higher than usual, though we remain confident in longer-term price appreciation”.
Bitcoin has already started to display signs of this forecasted volatility. Last week, the digital asset experienced a swift 6.2% drop before making a recovery. On Monday, Bitcoin shot past $70,000, touching $71,200 at the time of writing, according to data from CoinMarketCap.
Interestingly, Bitcoin is witnessing a surge in options activity. Implied volatility is predicted to reach its zenith on November 8 at 100 vol for strike prices over $100,000 for Bitcoin. Options that expire on significant dates surrounding the election are driving higher premiums and fueling this surge in activity.
Despite these turbulent times, Bitcoin has demonstrated remarkable resilience since its dip below $54,000 in early September. The digital asset seems set to close October in the green, continuing its trend from previous years. Regardless of the challenges, the future for Bitcoin appears to be bright, albeit with considerable volatility in the short term.
