Will Crypto Markets Ride a Wave with the US Election?

Will Crypto Markets Ride a Wave with the US Election?Bitcoin surged nearly 5% on Tuesday, breaching the $70,400 mark during the day. Dogecoin saw an even more significant surge, soaring 18%, partly driven by comments from its long-time supporter Elon Musk

Will Crypto Markets Ride a Wave with the US Election?

Bitcoin surged nearly 5% on Tuesday, breaching the $70,400 mark during the day. Dogecoin saw an even more significant surge, soaring 18%, partly driven by comments from its long-time supporter Elon Musk. Musk mentioned that if Trump wins the election, he would set up a government efficiency department, simply referred to as D.O.G.E. Solana also experienced a notable increase in price on the day, surpassing Bitcoin's gains.

For most of this year, smaller cryptocurrencies like Dogecoin and Solana have generally underperformed Bitcoin. As the US presidential election draws closer, these cryptocurrencies may experience even greater volatility.

Some industry insiders believe that the US election won't have a significant impact on Bitcoin. However, altcoins could be the big winners or losers: a Harris win might mean a less significant altcoin recovery, as Harris could potentially intensify regulatory crackdowns on the crypto industry. Bitcoin and Ethereum might survive, as they are considered more decentralized than other tokens.

Trump has repeatedly expressed strong support for cryptocurrencies, and his victory is seen as being more favorable for the crypto industry. Altcoins refer to smaller cryptocurrencies besides Bitcoin, which have historically performed better during bull market cycles, particularly after Bitcoin's price surges, leading investors to shift towards lower-market-cap coins. However, in the past year, altcoins haven't generally outperformed Bitcoin, except for a few "meme coins." Dogecoin is considered by many to be the progenitor of "meme coins."

Some traders believe that regardless of the election outcome, the overall crypto market will benefit. After the election, the market will likely refocus on macroeconomics and the Federal Reserve. In the short term, the crypto market is expected to be highly sensitive to the election results. The crypto options market indicates that the asset class will see a peak in short-term volatility before the election results are announced. Significant price fluctuations in Bitcoin could trigger liquidations due to leveraged positions. If Harris wins, it could lead to a rapid market drop in the short term. Nevertheless, this reaction is expected to be temporary, as uncertainty is eliminated, and the expansionary macroeconomic environment will support a strong upward momentum for cryptocurrencies by the end of the year.

According to data from Deribit, the largest crypto options exchange, the demand for Bitcoin options surrounding the US election is strong, with put options being more expensive, while call options have strike prices significantly higher than the current price. This suggests a divided market sentiment towards the election outcome: more traders are hedging against a Harris win, while others remain optimistic about a Trump victory. The rising premium on put options could also be attributed to the high hedging demand.

In summary, the US election is looming, and the crypto market is bracing for a strong wave. Both Bitcoin and altcoins will face significant challenges. Investors need to closely observe market changes and make informed investment decisions.