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Both bitcoin and traditional market investors are anticipating an uptick in volatility following the US presidential elections.

In Brief

  • Investors are expecting market volatility due to the possibility for contested US elections
  • The Democratic campaign manager has said: “under no scenario will Trump be declared a victor on election night”.
  • Polls and online betting markets are at odds, the latter are bullish on a Trump victory.

Bitcoin’s one-month implied volatility which measures investors’ expectation market turbulence over a four-week period – has risen to a two-week high of 59% in the last three days, according to data source Skew.
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The heightened short-term price volatility expectations could be associated with fears that the outcome of the election will probably be contested, resulting in a period of political and economic uncertainty.
Just this morning, the Biden campaign admitted that it would not allow a Trump victory under any circumstances.
Biden campaign manager, Jen O’Malley Dillon said: “Under no scenario will Donald Trump be declared a victor on election night”.
While the one-month implied volatility has increased, the six-month metric remains above the 60th percentile.
This suggests that markets are anticipating a short-term period of volatility due to political, after which the world’s largest economy can get back to work.
In addition, the 10 point rise in one month only indicates a moderate shift in sentiment, according to options trader Vishal Shah.
More extreme sentiment can be see in fiat currency markets, where the Chinese yuan’s one-weekly implied volatility doubled in 7-days to the highest point since 2011.
One-week implied volatility gauges for the euro and the yen have also risen to the highest since April.
All in all, the traditional markets will probably suffer if uncertainty reigns, aggravating a technical pullback in bitcoin if elections are contested.
However, should the market decide to realise that US elections have little tangible effect on bitcoin fundamentals, then this could be reflected in a less violent draw down. This scenario would be contingent on the technical retracement scenario delineated in this week’s Monday newsletter.
While the Democratic candidate Joe Biden (aka Sleepy Joe) is leading in most polls, online betting markets are bullish on the odds for incumbent President Donald Trump taking the White House again.
Once the dust settles post-election, the rising pile of negative-yielding bonds all over the world will probably reignite the bitcoin bull run as investors look for alpha in ‘alternative assets’.
Bitcoin is trading largely unchanged on the day near $13,500, having retreated from a fleeting 33-month high of $14,093 over the weekend.

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