Election Countdown: Bitcoin’s Price Surges as Election Day Nears

With only a few days until the election, markets are heating up. The NASDAQ-100 recently reached a record close, while Bitcoin is trading just a few hundred dollars below its previous all-time high. As election day approaches, investor sentiment is intensifying, driven by the perceived impact of the outcome on both traditional and digital asset markets. The stakes are high, with the presidency, Senate, and House races all having the potential to shape the future of financial regulation, economic policy, and the broader adoption of digital assets in the U.S.

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Prediction markets like Polymarket and Kalshi are forecasting a decisive victory for former President Trump, showing Trump with a lead of over 30% ahead of Vice President Harris, as illustrated in Figure 1. Although both candidates have recently expressed positive views on crypto, emphasizing the need for clear and precise regulation, the crypto markets appear to be leaning toward a Trump win. Bitcoin's recent price movements appear to be closely aligned with Trump's rising election odds, driven by his clearly defined stance on crypto. Trump has proposed initiatives such as a US Bitcoin strategic reserve and has shown support for various crypto sectors, including NFTs and DeFi. Notably, his involvement in projects like his NFT trading card collection and World Liberty Financial-a DeFi borrowing and lending protocol-underscores his commitment to advancing the broader crypto ecosystem.

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Figure 1: Trump & Harris Election Odds vs BTC Price

Source: 21Shares, Polymarket, Kalshi, Yahoo Finance

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Over the past month, Bitcoin's price has shown a strong correlation with Trump's election odds on both Polymarket and Kalshi, with correlations of 0.83 and 0.89, respectively. Kalshi's odds may offer a more accurate reflection of American sentiment, given that U.S. citizens are prohibited from using Polymarket. Meanwhile, Polymarket, as a more crypto-native platform, tends to capture a smaller, more niche segment of the population. However, it should be noted that according to SimilarWeb.com, 56.54% of Polymarket's user base are located in the United States, with over a 40% return rate, indicating that some users are finding ways around Polymarket's geography restrictions.

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Figure 2: Correlation Matrix - Trump & Harris Election Odds vs BTC Price

Source: 21Shares

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It should be noted that a major investor could potentially sway election prediction markets in either direction, influencing perceived odds to steer both investors and voters toward a desired outcome. It should also be considered that this is just one model among many, and a comprehensive analysis should include a broader range of models and polls to make informed investment decisions.

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Prediction Markets Diverge from Traditional Polls Ahead of Election Day

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Other models and polls, such as Nate Silver's model shown in Figure 3, present a much closer race, with Vice President Harris holding a slight edge. It's important to remember that these models are just that-models-and should not be taken as absolute. They are not always fully accurate predictors of outcomes. For instance, in the 2016 presidential election (Figure 4), Hillary Clinton was widely seen as the clear favorite, holding a lead of over 40% over Trump. Yet, as we know, Trump won by 77 electoral votes (over 30% more than Clinton) and came close to winning the popular vote, defying most polls and model projections.

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Figure 3: Nate Silver Election Model

Source: NateSilver.net

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Figure 4: 2016 Presidential Election Poll

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Source: fivethirtyeight

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Bitcoin: A Macro Asset Beyond Politics

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Bitcoin is an apolitical macro asset, and its price history during previous election cycles, supports this view. Excluding the current cycle, Bitcoin has experienced only three other election cycles in its history. The 2012 cycle can largely be discounted, as Bitcoin's total market cap was under $100 million and the asset was still in its infancy with less than two years of price data.

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Figure 5 illustrates Bitcoin's monthly returns during the 2016 and 2020 election cycles. In 2016, aside from an early-year Chinese stock market crash and an OPEC production cut, the U.S. presidential election was the primary macro event of the year. During this period, Bitcoin posted an average monthly return of 7.83%. Notably, Hillary Clinton was widely expected to win, with odds of 71% compared to Trump's 29%. This suggests that Bitcoin's returns might have been influenced by the prevailing assumption of a Democratic victory rather than by the actual outcome of a Republican win.

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The outcome of the 2020 election was more of a coin toss, though most polls still favored Biden over Trump by up to 8%. Despite numerous macro events during this period, including the COVID crash and a surge in global liquidity, Bitcoin experienced a significant rally with a Democratic nominee as the likely winner. This further underscores Bitcoin's status as an apolitical asset, largely unaffected by the party affiliation of leading candidates.

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Figure 5: 2016 and 2020 Bitcoin Monthly Returns During Presidential Election Years

Source: 21Shares, Yahoo Finance

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Bitcoin's Macro Potential Remains Bullish, No Matter the Election Outcome

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Bitcoin's price is closely tied to the global M2 money supply and government spending-both of which are expected to rise significantly regardless of whether Trump or Harris wins, as their policies are perceived as inflationary. Meanwhile, the market has seen a reduction in forced BTC selling. Many Bitcoin miners who had to sell after the last halving have already done so to stay afloat, and major holders like MT.GOX and the German government have largely offloaded their Bitcoin holdings. This has removed a substantial amount of supply from the market. With demand for Bitcoin likely to increase after the election, driven by expanded government spending and reduced selling pressure, a potential demand shock could push Bitcoin prices higher.

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Regardless of whether Kamala Harris or Donald Trump wins the upcoming presidential election, America's approach to digital assets will aim to democratize access for all citizens. Both candidates have pledged to prioritize policies that promote financial inclusion and innovation

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Although the Biden administration has generally maintained an anti-crypto stance, exemplified by actions such as the veto of SAB-121, Kamala Harris has demonstrated a more crypto-friendly outlook. As part of the Harris/Walz campaign, she presents a moderate approach: one that supports innovation in the crypto space while emphasizing the importance of regulatory balance and consumer protection. Their policy framework seeks to promote responsible digital asset adoption while ensuring adequate oversight.

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On the other hand, the Trump/Vance team adopts a more industry-friendly stance, promoting clear and supportive guidelines to foster growth and drive innovation in the crypto market. Their policies prioritize self-custody rights and adopt a more relaxed approach to regulations, such as sanctions and banking restrictions. They are strong proponents of legislation like FIT21 and stablecoin legalization, advocating for non-banks, such as Circle, to be recognized as legitimate stablecoin issuers-a move opposed by Democrats. Their approach aims to foster an environment conducive to digital asset expansion while upholding fundamental regulatory safeguards, ensuring that the U.S. remains a leading hub for digital assets.

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By establishing regulatory frameworks for digital assets, both administrations have promised to enable broader participation in digital assets. This approach not only fosters individual opportunity but also positions the U.S. to remain competitive in the global race for crypto adoption and innovation.

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Europe is currently leading the way in crypto regulation, providing clear guidelines that foster rapid growth and investment. For the U.S. to reclaim its leadership in this sector, it must develop a comprehensive regulatory framework that encourages innovation while ensuring consumer protection. A proactive approach from either candidate would not only level the playing field at home but also strengthen America's position as a global financial hub. Clear and accessible crypto regulations could bridge the gap between financial markets and everyday Americans, driving broader adoption and more sustainable economic growth.

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Ongoing Crypto Legislation

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There are currently two prominent crypto-related legislative proposals shaping the regulatory landscape: the FIT21 Act and stablecoin legislation such as the Lummis-Gillibrand Payment Stablecoin Act. Both aim to provide clarity and structure for the crypto industry, addressing issues like asset categorization, regulatory oversight, and consumer protection while balancing the need for innovation and compliance.

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The Financial Innovation and Technology for the 21st Century Act (FIT21) aims to establish a clear and structured legal framework for digital assets, defining the roles of the SEC and CFTC while setting compliance standards to reduce regulatory ambiguity for crypto companies The bill categorizes digital assets into digital commodities, restricted digital assets, and payment stablecoins, primarily offering guidance for the first two. It allows assets to be classified based on decentralization and functionality, requiring dual registration with the SEC and CFTC. The bill includes a self-certification process for blockchain systems, requiring intermediaries like exchanges and brokers to register appropriately, with the goal of bolstering consumer protections. While the House of Representatives passed FIT21 with bipartisan support, its future in the Senate remains uncertain, and it has sparked debate over its impact on market innovation and investor safeguards.

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The Lummis-Gillibrand Payment Stablecoin Act is a bipartisan bill introduced by Senators Cynthia Lummis and Kirsten Gillibrand to create a clear regulatory framework for payment stablecoins. It aims to protect consumers by requiring stablecoin issuers to maintain one-to-one reserves, banning algorithmic stablecoins, and ensuring compliance with anti-money laundering and sanctions rules. Under the Lummis-Gillibrand Payment Stablecoin Act, both depository institutions (such as banks) and non-depository entities (such as state trust companies) can issue stablecoins. Depository institutions can perform custodial services and hold assets related to payment stablecoins. Non-bank entities must create subsidiaries dedicated solely to stablecoin issuance. The legislation preserves the dual banking system by establishing both federal and state regulatory regimes, giving agencies roles in chartering and enforcement. It also addresses custody of assets, imposes risk management standards on service providers, and seeks to prevent illicit financial activity by setting strict penalties for non-compliance. The bill emphasizes supporting the U.S. dollar's dominance, fostering innovation, and promoting secure, compliant stablecoin issuance.

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Key Election Battlegrounds: Georgia, North Carolina, Pennsylvania, Michigan, Wisconsin, Nevada, and Arizona

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An important aspect of the upcoming election is the role of key swing states, which this election includes Georgia, North Carolina, Pennsylvania, Michigan, Wisconsin, Nevada, and Arizona. These seven states remain highly competitive, with candidates separated by margins of just 0-3%.

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Swing states often decide both the presidential race and congressional control, given these states' historically narrow voting margins. This makes swing states critical battlegrounds where even minor shifts in voter sentiment can alter outcomes. The stakes extend beyond the presidency, as results in these states will also affect Senate and House races, shaping the legislative environment and the potential for crypto-friendly policies. Victories in these swing states could influence everything from regulatory appointments to fiscal policy, underscoring their strategic importance for candidates aiming to enact meaningful changes in financial markets and the broader digital asset economy.

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The Real Risk: Market Volatility from an Uncertain Election Result

The worst possible outcome isn't a win by either Trump or Harris-it's an unclear result, similar to the 2000 presidential election between George W. Bush and Al Gore. In that race, a razor-thin margin in Florida-fewer than 600 popular votes and just five electoral votes-left the outcome undecided. On election night, Florida was labeled 'too close to call,' triggering both automated and manual recounts over the following weeks. It wasn't until 36 days later, after a series of court rulings that reached the Supreme Court, that Al Gore conceded.

If this year's election turns out to be just as close, it is likely that both sides will contest the results, leading to recounts and legal battles. During the twenty trading days following the 2000 election, the NASDAQ-100 dropped as much as 26% amid extreme volatility. In a comparable scenario today, Bitcoin and the broader digital asset market would likely experience heightened volatility, as markets typically respond poorly to uncertainty. An unresolved election outcome would not only amplify short-term price swings but could also dampen investor confidence, as prolonged ambiguity over policy direction could slow down the adoption of clear regulatory frameworks for crypto.

Beyond the Presidential Election: The Senate and House Battles That Could Define U.S. Crypto Policy

Two of the most notable Senate races this cycle, as pertains to digital assets, are Senator Sherrod Brown vs. Bernie Moreno in Ohio and Senator Elizabeth Warren vs. John Deaton in Massachusetts. Both Brown and Warren are widely viewed as anti-crypto, having made strong negative statements about the industry. Senator Warren has even vowed to build an 'anti-crypto army,' while Senator Brown has labeled crypto as a tool for 'illicit finance, terrorism, and other criminal activity.' Both have received an 'F' grade from the Stand With Crypto Alliance, a 501(c)(4) nonprofit advocating for clear, common-sense crypto regulations.

As ranking members of the Senate Banking Committee-with Brown serving as the Chair-both senators hold significant influence. This committee not only sets the agenda for hearings and legislative priorities but also plays a key role in the confirmation of financial regulators, shaping the direction of U.S. financial and crypto policy.

A Senate favorable to crypto would be a significant win for the industry, given the Senate's influence over fiscal policy, crypto legislation, and the confirmation of key regulatory appointments at agencies like the SEC and CFTC. Currently, Polymarket puts the odds of Republicans taking control of the Senate at 83% versus 17% for Democrats, reflecting stronger Republican support for crypto initiatives.

The House of Representatives, however, is viewed as a much closer race, with odds of 53% for Republicans and 47% for Democrats. The House plays a crucial role in shaping fiscal and crypto-specific legislation, and while crypto policy has seen some bipartisan support, a shift in control could impact committee assignments and legislative priorities. Whether one party controls both chambers and the presidency will be crucial for determining the level of government unity, which in turn affects fiscal policy and broader financial markets. A divided government could slow the progress of crypto legislation, while a unified government might enable more decisive action.

As election day looms, the outcomes of the presidential, Senate, and House races will play a pivotal role in shaping the future of financial markets, economic policy, and the crypto industry. While both Trump and Harris have expressed support for clearer crypto regulation, the overall direction of policy will depend on which party secures control of Congress. A clear winner could provide the regulatory certainty needed to foster wider adoption and innovation, while an unclear result could introduce volatility and uncertainty, stalling progress on critical legislative fronts.

The $74,000 level has been a significant resistance level for Bitcoin over the past several months. The market dislikes uncertainty, and as the likelihood of one candidate winning became clearer, it spurred a rally. Come November 5th, as long as the results are decisive and we avoid weeks of recounts, Bitcoin is poised to retest-and likely break through-the $74,000 barrier. This could propel prices to $80,000 and beyond by year's end, entering a phase of price discovery.

Supporting this outlook is data from Deribit, the leading crypto options provider, which handles over 80% of crypto options trading volume. As seen in figure 6, over 85% of the call options volume for Deribit's December 27, 2024 contract have strike prices of $70,000 or higher. Notably, 42% of the volume is concentrated at strike prices of $100,000 or above, signaling strong market expectations for Bitcoin to trade significantly higher by year's end.

Figure 6: Deribit 27DEC24 Call Options Contract Trading Volume

Source: 21Shares, Deribit

Taking a look at the opposite end of the spectrum with put contracts, we observe that there are approximately 26,000 open positions at strike prices below the current level of around $70,000. Roughly 51% of this put options volume is concentrated below $60,000, indicating that many traders view this range as a key area for hedging or as a potential downside target post-election. It is worth noting that there are roughly three call contracts for every one put contract-65,224 call contracts compared to 27,771 put contracts-highlighting that most investors expect Bitcoin's price to rise by year's end, keeping in mind that in most markets, call options typically outnumber put options.

Figure 7: Deribit 27DEC24 Put Options Contract Trading Volume

Source: 21Shares, Deribit

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Ultimately, the results of this election will not only impact Bitcoin's price trajectory but also determine the U.S.'s position in the global race for digital asset adoption and innovation. With so much at stake, investors should prepare for potential market shifts, keeping a close eye on how the broader political landscape unfolds in the days and weeks to come.

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