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– TIMESTAMPS –
2:30 Why Bitcoin is Impacted
5:34 Potential Scenarios
9:52 Contested Election
12:36 What is Likely?
15:35 How to Hedge Yourself
18:58 Final Thoughts
⛓️ 🔗 Helpful Links & Sources 🔗 ⛓️
► Market Outcomes:
► Contested Election Risks: https://www.vox.com/policy-and-politics/2020/9/24/21451485/stock-market-wall-street-dow-joe-biden-donald-trump
► Vix Movements: https://qz.com/1910348/vix-index-shows-traders-expect-contested-us-presidential-election/
► Elections & Stock Returns: https://www.fidelity.com/learning-center/trading-investing/markets-sectors/stock-returns-and-elections
🤔 Why Bitcoin Could Move 🤔
Bitcoin has become increasingly correlated with the equity markets. This is because Bitcoin is increasinly been held by large institutional investors who view it as part of their “risk on” portfolio. This means that they are likely to be impacted by these moves in the equity markets.
Bitcoin used to have no correlation with the equity markets but over the past year, this has changed quite a bit. More recently, the 1 month correlation of Bitcoin with the equity markets has been close to 0.5 which means a mild positive correlation.
🗳 Potential Scenarios 🗳
There are a number of potential outcomes that could happen as a result of this election. The republicans are generally viewed as more business friendly as they have favorable tax policies that mean that the equity markets can perform well.
The first scenario is Trump wins the presidency and the Republicans are likely to retain the Senate. This outcome is likely to have the biggest positive move in the stock markets.
Another scenario is that Trump wins re-election but the Republicans lose the senate. So, while this may mean political deadlock, it does mean that to get any sort of legislation passed, there will have to be compromise. This is likely to be more neutral for stocks.
If there is a clean sweep for the democrats and they win presidency & the senate. If this was the outcome, they are predicting a fall of between 5-10%.
😟 Contested Election 😟
Given the pandemic, a record number of people will be voting by mail. This means that these need to be counted and they could take time to count.
There is also the scenario in where this election is actively contested which means that it will have to go to the supreme court. This happened in 2000 with the Gore vs. Bush election. During the first two weeks after the election, the Dow sold off over 5%.
If this is stretched out until January of next year then it could further harm the equities markets.
🤔 What is Likely? 🤔
There are a number of ways to get a sense of what is likely in the election. The best places to get this is perhaps on the betting markets.
Firstly, you can take a look at Predictit. If we take a look over at their prediction map for the United States, you can see that Biden has the edge. His “stock” is trading at 59 cents vs. Trump’s 45 cents.
You can also take a bit of a closer look into the senate race over here. Similarly, the democrats have a lead here with their share at 58 cents vs the republicans at 43.
You can also look at the election map over at smarkets.com. They have the probability of a Biden win at 58% and a Trump win of 41%.
💸 Potential Opportunities 💸
Currently, the S&P500 implied volatility index (the VIX) has been increasing as investors have been getting nervous about the impact of the election on the equity markets. This means that the cost to hedge against these risks has gone up.
However, Bitcoin option implied vol is near record lows. This means that investors in the Bitcoin market are not fearing the outcome of the election as much as those in the equity markets. This does not make that much sense especially given that they have this high correlation. You should consider buying some December Bitcoin options.
📜 Disclaimer 📜
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading Forex, cryptocurrencies and CFDs poses considerable risk of loss. The speaker does not guarantee any particular outcome.
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