Published: October 30th, 2024
Crypto traders are preparing for volatile BTC pricing as the American election on November 5th gets closer. A report from DeFi derivatives platform Derive says price swings of as much as 20 per cent are expected.
Derive’s data shows a high proportion of bets around a strike price of USD 80,000 for Bitcoin. The firm noted an abundance of short-term call positions, as traders take advantage of option premiums to get ready for potential price movements.
Figures from CoinGecko show Bitcoin broke briefly above USD 70,000 on Monday, 28th October, a level it last hit in early June. At time of writing, it was up more than five per cent at USD 71,205.
'The vast majority of calls being sold point to a strategic premium collection by traders,’ Derive analysts wrote. ‘The focus on the USD 80,000 level suggests a potential pivot point for BTC.’
Between Monday the 28th and Tuesday 29th October, Derive says more than 46 per cent of options sold were calls, e.g. bets on BTC’s price to rise. Traders are hoping to benefit from ‘juiced premiums’ triggered by election-driven volatility.
Looking at different expiration dates, volatility patterns indicate crypto traders are buckling in for a bumpy ride ahead of November 5th, but many are still unsure about which direction prices move in.
US voters will take part in what traditional polls say is a tightly contested election between Trump and current US Vice President Kamala Harris. Of the two, Trump has been most keen to make crypto part of his policy platform.
In early September, a report from CoinShares said major investors were pulling cash out of Bitcoin exchange-traded funds (ETFs) as sentiment soured on the world’s biggest digital asset.
A traders and institutions started betting on a BTC price drop, some USD 320 million exited the ETFs offered by ARK Invest, Fidelity, and other big Wall Street banks. CoinShares analysts said investment products designed to ‘short’ Bitcoin with bets that the price of BTC will go down, saw inflows of USD 4.5 million, a level last seen in March 2024.
BlackRock, the gargantuan global asset manager and world’s number one Bitcoin ETF issuer, was the only fund manager to go against the trend, posting five-day inflows of USD 220 million to its iShares ETF.
CoinShares, which saw outflows of USD 4 million from its own ETF last week, said the main driver behind negative BTC sentiment is ‘stronger-than-expected US economic data, which has reduced prospects for a 50-basis point interest rate cut this Fall.
The firm's analysts noted that cryptocurrencies are likely to become ‘increasingly sensitive’ to interest rate expectations in general over the next few weeks.
Forex traders across the board have been looking for the Federal Reserve to reduce interest rates since the central bank first lifted them to a 20-year high in 2022. A growing consensus believed that the Federal Reserve would lower them in September following suggestions of ‘coming change’ by Fed Chairman Jerome Powell in late August.
Because cryptocurrencies (and instruments pegged to their price moves like ETFs) are considered to be risk-on assets, with more price volatility than other investments, a high-interest rate environment can make them less appealing.
The outflows stood in stark contrast to the trend in mid-July 2023, when Bitcoin ETFs saw inflows of USD 1.35 billion, chalking up their fifth-best week for the year to date.
Data from CoinShares showed that close to USD 1.44 billion in assets found their way into exchange traded crypto funds generally, bringing the year’s total to an all-time high of USD 17.8 billion, well in excess of 2021’s previous high of USD 10.5 billion.
Bitcoin funds pulled in the lion’s share of the inflows, which is not surprising. Neither was the fact that USD 1.3 billion of the total inflows came from American investors. The rise has been steady, with the previous week's inflows tripling the USD 441 million mark achieved just seven days prior. That was when crypto fund inflows turned positive again after three weeks of losses.
An analysis from Farside Investors echoed the CoinShares finding, showing that US spot Bitcoin ETFs saw a full week of daily inflows in mid-July, posting more than USD 310 million in net inflows on Friday, July 12th, 2024 alone. That was the highest level seen in over a month.
CoinShares’ numbers also had Ethereum racking up positive inflows of around USD 72 million as crypto traders prepared for the expected approval of spot Ethereum ETFs. Altcoins like Solana, Avalanche benefitted from bullish sentiment, with Solana-based funds attracting close to USD 4.3 million in inflows.
In a commentary accompanying the release, CoinShares said price weakness caused by the German government’s recent Bitcoin liquidation, along with "changing sentiment thanks to lower than anticipated inflation readings in the US had spurred investors to extend their crypto positions.”
Following a period of sustained outflows, better days appeared to be back for Bitcoin exchange-traded funds (ETFs) in May 2024, when every one of the new US investment products saw cash flow turn positive.
Figures published by Farside Investors showed that for the first time since receiving SEC approval in late 2023, Bitcoin ETFs had achieved a unanimous turnaround. Investors flowing more cash into Grayscale’s Bitcoin Trust (GBTC) was the definitive move, marking the first-time that net inflows went positive since converting to an ETF in January.
From that point the fund experienced daily outflows as investors who had been unable to redeem shares previously exercised the option, apparently in a bid to locate competing funds with lower fees.
That all changed when GBTC ballooned by USD 62 million. That, and parallel moves by investors sending cash to all the other crypto funds, added up to USD 378 million flowing into the Bitcoin ETF market in a single day.
The turnaround was notable since the new investment vehicles had also posted their worst day ever the same week, losing more than half a billion dollars. The sudden departure came after weeks of cooling investor interest.
In January, the US Securities and Exchange Commission (SEC) finally gave assent to 11 spot Bitcoin ETF applications after a decade of regulatory heel-dragging. The funds allow everyday investors to gain exposure to crypto markets through a brokerage account. The instruments track the price of the cryptocurrency, so investors don't have to hold the crypto and face direct exposure to its ups and downs.
