One of the most-watched deals in crypto has been the “Trump trade,” in which traders bet on Donald Trump’s chances of winning the November election for president of the United States.
In general, crypto traders think that there will be more volatility around the election. This is because the expected volatility for bitcoin BTCUSD 0.82% options that expire in November is much higher than that for options that expire before the election.
“That’s just how the market prices in a risk premium over the event,” Bohan Jiang, who is in charge of OTC options dealing at Abra, explained in a chat.
One of the people in charge of digital assets strategy at Fundstrat Global Advisors, Sean Farrell, said earlier this month that buyers have been pricing in and out the so-called “Trump premium” for a few months now. That means that since a Trump victory is thought to be good for bitcoin, the price of the cryptocurrency may go up as the odds of Trump winning rise, and vice versa.
Trump promised to build a U.S. bitcoin store and make sure that most bitcoin is mined in the U.S. in an effort to win over crypto fans. On the other hand, a lot of people in the crypto community think that the Biden government has been against digital assets.
There have been times when it seemed like the price of bitcoin and Trump’s chances of winning were very closely linked. After Trump escaped an assassination attempt on July 13, Bitcoin went up more than 18% in seven days. This happened at the same time that the chances of him winning also went up.
But, as Jiang of Abra pointed out, this connection has only lasted for a short time. Jiang said there hasn’t been a lot of data proof that the price of bitcoin and the chance of Trump winning are linked, but that could change as the election gets closer.
Nico Cordeiro, chief investment officer at quantitative crypto hedge fund Strix Leviathan, says that the most interesting link between bitcoin and the tech-heavy Nasdaq Composite COMP 0.21% stock market index right now.
The relationship between bitcoin and stocks has changed over time, but for the past few weeks, the two have been mostly moving in sync. This is because most risk-asset buyers are worried about a recession and expect the Federal Reserve to cut interest rates.
How much the price of bitcoin is linked to Trump’s chances of winning also depends on how the Democratic Party feels about crypto. As Kamala Harris, the Democratic presidential candidate, prepares to lay out her economic plan ahead of next week’s Democratic National Convention, investors are eager to learn more about her views on the asset class.
“If Democrats stay hostile and Harris’s chances get better, that could be bad for bitcoin.” In an interesting twist, Alex Thorn, head of firmwide research at Galaxy Digital, wrote in a recent note that the link between Trump’s chances of winning and BTCUSD could disappear if Democrats change their minds about cryptocurrencies.
Even though Harris hasn’t said much about crypto yet, Thorn isn’t sure if her views on the asset class would be very different from those of the Biden government.
Still, there have been some positive signs. For example, in early August, Harris’s campaign hired David Plouffe, who used to be Barack Obama’s top political assistant and also worked as an advisor for the cryptocurrency exchange Binance. Brian Deese and Bharat Ramamurti, two former Biden economic advisers who have been critical of crypto, are said to be helping Harris set her economic policy plan. This dashed some hopes as well.
“From my point of view, I strongly doubt that we can expect the Harris campaign to change its crypto policy,” Thorn said. It seems like most people in the market think and see that the rising chances of Harris-Walz beating Trump-Vance are bad for the price of bitcoin in the near future.
Another person who agreed with that was Matthew Graham, founder and managing partner at crypto venture capital company Ryze Labs.
Graham told MarketWatch, “I think it would be foolish to think that if Harris is elected, her administration would be better for the crypto industry than the current one.” “That could change, of course.”
