The US presidential election remains tense, marking the most evenly matched election in history. The market is placing bets on different outcomes, with US bonds shifting towards 'betting on Harris' at the last moment, while bitcoin still 'betting on Trump'.

On Wednesday, as the US election entered the vote-counting stage, bond traders increased their bullish bets on US bonds in the final moment, switching options, futures, and cash positions to bullish, increasing the bets on Harris potentially winning the election.

While bitcoin continues to support Trump, bitcoin saw a growth of over 2% on Wednesday, now trading at $71,157.23, maintaining the largest weekly increase in a week.

Analysis suggests that bonds are most concerned about a Republican sweep, as Trump would push forward tax cuts and tariffs, increase the fiscal deficit, restart an inflationary era, thereby raising the yield on US 10-year bonds. Cryptos, on the other hand, might have a win-win situation, as Trump is undoubtedly a supporter of cryptocurrencies, but Harris also hinted that she wouldn't continue the tough crackdown on the industry like Biden did.

US bonds shifting to 'bet on Harris'

US bond investors are heavily entering trades that could profit from the rise of US bonds, believing that this scenario is more likely in the event of Harris winning the election, simultaneously reducing bets on Trump's victory.

Since Monday, US options activity has been predominantly focused on short-term bullish bets. Weekend polls indicated Harris gaining an edge over Trump, prompting traders to prepare for a potential Harris victory.

The futures market has also seen this shift, with new long bets appearing on Monday, including a significant increase in demand for longer-term bonds. As of the week ending October 29, asset management companies increased their net long positions by about 182,000 contracts in 10-year government bond futures.

In addition, the latest client survey from JPMorgan shows that net long positions in U.S. Treasuries are at the highest level in three months, another sign of the market sentiment shift.

These actions signify a shift in traders, partially driven by expectations of a Trump victory establishing put positions. However, with polls indicating a tight race, investors are now preparing for the possibility of the election results going the other way and getting ready for market volatility.

Bitcoin continues to 'stand with Trump.'

On Wednesday, the increase expanded by over 2%, now at $71,157.23, maintaining the largest weekly gain in a week, less than 5% from the record low set in March.

Due to Trump's support for digital assets, Bitcoin's rise is seen as the so-called 'Trump trade.'

Trump has pledged that if he returns to the White House, he will make the U.S. the global capital of cryptos, establish a strategic Bitcoin reserve, and appoint regulators who are enthusiastic about digital assets, indicating that he is the most crypto-friendly candidate. Harris has taken a more cautious stance, promising to support the regulatory framework of the industry.

Bonds fear a sweep, win-win for cryptos?

Overall, the bond market is most afraid of a Republican sweep, while cryptos are expected to perform well under any circumstances.

Analysis suggests that a Republican landslide is seen as a "clear threat" to bond buyers. In a scenario where Republicans dominate and unify the Congress, Trump will push for tax cuts and tariff plans, expand the fiscal deficit, and restart an inflationary era. This will raise the yield on 10-year US Treasuries, potentially leading to further decline in the bond market.

On the other hand, if Harris wins amidst a divided Congress, it may trigger a relief rebound, increasing the likelihood of a deadlock that could control government spending.

In almost all other scenarios, there is controversy over what will happen. JPMorgan's strategists predict that a unified Democratic government and Congress will lead to increased government spending, thereby pushing up bond yields. However, RBC Capital indicates that this situation is most favorable for bonds, as it will result in corporate tax hikes, exacerbating an "anti-business" environment and weakening risk appetite.

Regarding cryptos, analysts believe that Bitcoin is likely to benefit from a Trump victory, as he is a strong supporter of cryptos, planning to establish strategic reserves of the original crypto and appoint regulatory bodies friendly to the industry. However, a Harris victory may not necessarily be detrimental to the industry, as she hints at not cracking down on the industry as harshly as Biden.

In the short term, the optimistic sentiment of crypto investors may have been partially absorbed by the market. Bitcoin's price has once again exceeded the $70,000 mark, while tracking Bitcoin exchange-traded funds have received the largest inflows to date. With fierce competition and the difficulty in distinguishing winners, the demand for hedging in the crypto options market has significantly increased.

Bloomberg statistics show that on Monday, 12 Bitcoin ETFs managed by BlackRock, Fidelity, and other companies saw incredible net outflows of $0.5795 billion, reaching a historic high. Option pricing implies that the expected market volatility for Bitcoin on the day after the election will reach 8%.

Furthermore, options traders are prepared for significant future profits. According to the largest crypto options exchange Deribit, for contracts expiring in March, the largest open interest contracts are concentrated around strike prices at around $0.1 million and $110,000.

Editor/Rocky