Author: James Hunt Translation: Blockchain in Plain Language
The election day in the usa has arrived, and the 24/7 trading nature of the cryptos market provides an advantage compared to the trading hours of traditional markets. Kaiko's analysts outlined three key indicators to watch for as the election results are announced.
1. Tick-by-tick Trading Data
Firstly, observing tick-by-tick trading data on major platforms can provide insights into the movements of 'smart money.' Calculating Cumulative Volume Delta (CVD) through tick-by-tick trading can measure the net buying and selling activity on global crypto exchanges. Kaiko analyst Adam Morgan McCarthy said that this indicator provided valuable insights during the presidential debates between Trump and Kamala Harris, and is expected to play a role again during the elections period. During the debate in September, the CVD turned negative, indicating a bearish market reaction to Trump's performance, as Harris was perceived as less crypto-friendly compared to Trump, who showed clear support for the crypto industry.
CVD on Coinbase during the presidential debate. Image Source: Kaiko.
The analyst explained that by dividing tick-by-tick trades into buys and sells, one can observe the strong selling pressure due to the real-time market reaction to Trump's performance. This helps to seize market opportunities, shows when buying and selling pressures weaken, and provides clues to participants' expectations.
During the presidential debate, there were buys and sells of bitcoin on Coinbase. Image Source: Kaiko.
2. Funding Rate
According to Kaiko's analysis, the second indicator to pay attention to is the funding rate. Leveraged traders are very sensitive to sudden changes, which can lead to market liquidations or cascading liquidations, whether it be on an upswing or a downturn.
Higher funding rates usually indicate intensified speculation in bitcoin perpetual contracts. In March, when bitcoin broke through $73,000 to hit a new all-time high, the funding rate soared above 0.05%. However, McCarthy stated that last week, when bitcoin approached the same levels, the funding rate on both BN and Bybit, the two largest perpetual contract platforms, remained around 0.01%, indicating a decline in traders' confidence before the election.
BN adjusts the funding rate every eight hours, with the first adjustment at 12:00 noon Eastern Time, followed by another adjustment after the East Coast voting ends, at 8:00 pm. The next adjustment will be at 4:00 am Eastern Time on Wednesday, at which time the election results may become clearer.
3,Implied volatility
Finally, implied volatility (IV) is also a key indicator in the derivatives market, showing how participants price risk. IV is a forward-looking indicator that predicts the expected volatility of assets within a given time frame, summarizing multiple data points into a single number, allowing traders to determine whether options are relatively cheap or expensive.
Monitoring the IV term structure helps traders anticipate potential market risks. An inverse IV structure, with short-term IV higher than long-term IV, typically signals impending risk events, such as the USA elections, as explained by Kaiko analysts.
Recently, Bitcoin's rally nears historic highs, causing a surge in short-term IV, catching traders off guard and prompting them to adjust their positions. This change affects the IV smile – a pattern showing options with relatively high implied volatility around the current price being slightly higher or lower. A right-leaning IV smile indicates market expectations of price rise volatility, while a left-leaning one indicates market concerns about potential price drops. Recent changes highlight how traders hedge expected price movements, he added.
Implied volatility of Bitcoin before the USA elections. Image Source: Kaiko.
Ultimately, the market is driven by supply and demand dynamics, influenced by participant behavior. However, McCarthy points out that the accuracy of these trend predictions remains uncertain, as traders are not infallible.
4. Market forecasting and polling diverge in situations of uncertain outcomes.
Currently, Trump's winning probability on the decentralized platform Polymarket is 62%, with Harris at 38%. The platform's trading volume on the presidential election results has reached $3.25 billion, making it the largest prediction market to date. On the regulated Kalshi platform, Trump's chances are 57%, and Harris's are 43%. However, Bernstein analysts pointed out on Monday that the national polls' average results remain close, with Harris leading by 1%, within the margin of error.
Kaiko previously pointed out that the level of open contracts on Polymarket indicates a lack of sufficient liquidity on the platform for betting on the USA election, and its predictive ability is also controversial. Analysts from the crypto trading company and market maker GSR mentioned this week that others have pointed out that the performance of the prediction market in the election varies, with the possibility of large holders distorting the market, or potential biases due to the dominance of males, crypto-native users, and non-US traders on the platform.
However, after a brief convergence of odds for the two candidates over the weekend, Gautham Chukkani, head of the Bernstein digital asset department, said: 'For those who think that Polymarket data is manipulated by Trump's bias, we believe that the weekend trading data has shown that it operates like any public market and traders may have been spooked by the gradually increasing poll data.'
Furthermore, supporters of the accuracy of prediction markets believe that the focus on voter polling rather than electoral college voting and the use of retrospective polls in election models are key factors. They also emphasize that the odds in most gambling markets are similar to Polymarket, indicating a low possibility of market manipulation. GSR also added that academic research shows that prediction markets are typically more accurate than surveys or expert opinions, with transparency, collective intelligence, and market dynamics driving odds towards accuracy.
Kaiko pointed out that Pennsylvania, North Carolina, Georgia, Michigan, Wisconsin, Arizona, and Nevada are key swing states on election night, especially Pennsylvania. If Harris loses her 19 electoral votes, according to some polls, the path to the White House will become exceptionally difficult, if not nearly impossible.
Currently, on Polymarket, Trump leads in Arizona, Georgia, Nevada, North Carolina, and Pennsylvania, while Harris leads in Wisconsin and Michigan.
5. Expected Impact of Bitcoin Price
Amberdata's derivatives director Greg Magadini stated in an interview with The Block that he expects Bitcoin's price to fluctuate between $6,000 and $8,000 post-election. If Harris wins, it may drop to $60,000; if Trump wins, it may break $75,000 for a new all-time high.
BRN analyst Valentin Fournier also agrees, stating that the expected post-election price fluctuation of Bitcoin is around 10%, with a potentially positive impact if Trump wins and a possible price correction if Harris wins. 'However, regardless of the election outcome, the medium to long-term outlook for Bitcoin remains bullish,' Fournier pointed out.
On Monday, Bernstein analysts said they expect bitcoin to reach $80,000 to $90,000 before January 20th, the presidential inauguration day if Trump wins, but also warned that if Harris wins, bitcoin could drop to $50,000 during the same period before rebounding.
According to The Block's bitcoin price page, the current trading price of bitcoin is $68,828. In the past week, bitcoin has fallen by about 4%, but has risen by 63% so far this year.
Meanwhile, the GMCI 30 index representing the top 30 cryptocurrencies has fallen by about 7% in the past seven days, currently at 120.08, but has risen by about 21% in 2024.
