The next few weeks will see bitcoin (BTC) experience massive volatility due to uncertainty surrounding the United States presidential election, the “Trump trade” narrative, and the Q4 seasonality performance the asset has witnessed in past years.
Analysts at the crypto exchange Bitfinex said in a weekly report that these factors would create a “perfect storm” for BTC; however, they also promise exciting times ahead for the leading cryptocurrency, regardless of narratives making the rounds in the industry.
The “Trump Trade” Narrative
The U.S. presidential election has a growing influence on bitcoin’s price movements in the near term. The crypto community considers a Republican victory a bullish move for BTC, while a win for the Democratic Party means the opposite. This is because Republican candidate Donald Trump is pro-crypto and promised favorable policies for the budding industry upon becoming president.
On the other hand, the Democratic candidate, Kamala Harris, who serves as the Vice President of the current administration, which is leaning toward anti-crypto actions, only started warming up to digital assets recently as the heat of the elections intensified.
The general market consensus is that option premiums and volatility for the U.S. stock market and BTC are bound to rise by the first week of November after the election results are released.
However, with the increasing correlation between Trumpʼs election odds and bitcoinʼs upward trajectory, BTC may likely experience greater volatility than other risk assets. This is the origin of the Trump trade narrative, which reflects the market’s belief that bitcoin’s trajectory depends on the election outcome.
“Regardless of the election outcome, short-term volatility is expected to be higher than usual, though we remain confident in longer-term price appreciation,” Bitfinex stated.
Bitcoin Options See Surge in Activity
Bitcoin has already begun experiencing intense volatility. Last week, the asset saw a swift 6.2% plunge before recovering. On Monday, the cryptocurrency surged past $70,000 and had touched $71,200 at the time of writing, per data from CoinMarketCap.
Noteworthily, Bitcoin is seeing a surge in options activity. Implied volatility is expected to peak on November 8 at 100 vol for strike prices over $100,000 for BTC, and options expiring on key dates around the election are driving higher premiums and fuelling the surge in activity.
Meanwhile, BTC has shown remarkable resilience since its fall below $54,000 in early September. The asset is on track to closing October in the green, just like in previous years.
