Introduction
As the 2024 US presidential election approaches, cryptocurrency markets are showing interesting trends in derivatives positioning. This analysis examines Bitcoin futures and options data, revealing cautious short-term sentiment but a bullish long-term outlook. We’ll explore how traders are preparing for potential market volatility surrounding both the election and the subsequent Federal Open Market Committee (FOMC) meeting.
Derivatives Positioning Overview
The cryptocurrency derivatives market is providing valuable insights into trader sentiment as we approach the US presidential election on November 5, 2024, and the FOMC meeting two days later. Analysts are closely monitoring both perpetual futures and options markets for clues about expected price movements and volatility.
Perpetual Futures Analysis
Open Interest and Funding Rates
According to market analyst @scopicview, traders appear to be exercising caution in the lead-up to the election. This sentiment is reflected in the stability of total Bitcoin perpetual futures open interest since the second quarter of 2024. Notably, neither the open interest-weighted nor volume-weighted aggregate Bitcoin funding rates suggest heavily skewed positioning. The analyst reports that “The 10-day average annualised OI-weighted and volume-weighted funding rates are both currently in the low 7% range.” This is a significant departure from the extreme long positioning seen in early March 2024, when funding rates exceeded 50%.
Options Market Insights
OTM Call Activity
Despite recent increases in Trump’s implied election odds on prediction markets like Polymarket, there hasn’t been a notable surge in long out-of-the-money (OTM) call option flows. For the November 8, 2024 expiry (the first after the election), OTM calls represent 56% of the open interest on Deribit’s Bitcoin options, which is not unusual.
Longer-Term Bullish Sentiment
However, a more bullish outlook emerges when examining longer-dated options. The percentage of OTM calls increases significantly for subsequent quarterly expiries:
- December 27, 2024 expiry: 64.53% OTM calls
- March 28, 2025 expiry: 79.79% OTM calls
This increasing proportion of OTM calls for later expiries suggests that traders are anticipating potential upside in Bitcoin prices over the longer term, possibly influenced by factors beyond the immediate election results.
Volatility Expectations
Implied vs. Realized Volatility
An interesting development in the volatility landscape is the recent shift in the 30-day implied volatility (IV) to realized volatility (RV) spread for Bitcoin. After spending most of the third quarter of 2024 in negative territory, this spread has turned positive, indicating that implied volatility is now higher than realized volatility.
Despite IV being slowly compressed recently, as the election entered the 1-month period this week, the IV-RV spread hit the highest levels since mid-July signalling some bid in vols.
This widening spread suggests that options traders are pricing in expectations of increased market volatility in the coming weeks, likely due to uncertainties surrounding both the election and the subsequent FOMC meeting.
Key Takeaways
- Traders are showing caution in perpetual futures markets, with stable open interest and moderate funding rates.
- Short-term options positioning doesn’t indicate extreme bullish bets, but longer-dated options reveal growing optimism.
- The options market is pricing in higher volatility expectations as the election approaches.
- There’s a disconnect between Trump’s rising odds in prediction markets and the lack of corresponding short-term bullish options bets.
- The cryptocurrency market appears to be taking a “wait-and-see” approach to the immediate election impact while maintaining a bullish longer-term outlook.
Conclusion
As we approach the 2024 US presidential election, Bitcoin derivatives markets are painting a nuanced picture of trader sentiment. While short-term caution prevails, there’s an undercurrent of long-term optimism. The anticipated increase in volatility suggests that market participants are prepared for potential turbulence in the coming weeks. As always, investors should remain vigilant and consider multiple factors when making trading decisions in this dynamic political and economic environment. What’s your view on how the US election might impact cryptocurrency markets? Share your thoughts in the comments below!
