Bitcoin Volatility Jumps to 3-Month High Ahead of U.S. Election

As a seasoned crypto investor with a knack for navigating turbulent market waters, I find myself bracing for the impending storm that seems to be brewing. The surge in implied volatility in Bitcoin, as well as other legacy markets such as EUR/USD and U.S. Treasury notes, is reminiscent of the unpredictable rollercoaster ride we experienced back in 2023.

An options-based measure of expected price swings in bitcoin (BTC) has hit a three-month high amid indications from betting markets of a tightly contested U.S. presidential race in crucial swing states.

The Bitcoin Implied Volatility Index (DVOL) on Deribit, a popular crypto options exchange, increased to a level of 63.24% annually, which is its highest point since late July, as per data from TradingView. This suggests that traders expect significant price fluctuations for bitcoin in the coming 30 days.

The seven-day projected volatility for Bitcoin (BTC), taking into account the upcoming Federal Reserve meeting on Thursday and the anticipated election results on Friday, has surged to a yearly rate of 74.4%, noticeably higher than its seven-day realized or past volatility of 41.4%.

As a crypto investor, I’m aware that QCP Capital, based in Singapore, has pointed out a notable risk premium linked to upcoming elections. This suggests that there might be increased volatility and potential market fluctuations around the election period.

On a Sunday morning, the chances of the pro-cryptocurrency Republican candidate Donald Trump prevailing in the pivotal battleground state of Pennsylvania significantly dropped on the prediction platform Polymarket, falling from 61% to 53%.

Currently, the latest polls show that in the upcoming U.S. election on November 5th, both Trump and Harris are neck-and-neck, tied at 48%. However, if we include undecided voters, Harris is ahead by two points in a different survey. In American politics, a swing state is one where either party has a chance to win, and the results of this election will be announced on November 8th.

On Tuesday this week, Bitcoin nearly reached all-time highs, soaring up to $73,500, as betting platforms suggested a clear advantage for Donald Trump. However, since then, both Trump’s chances and Bitcoin’s value have declined, with the cryptocurrency dipping below $68,000 early this morning.

Vol spike in legacy markets

In both the foreign exchange and U.S. Treasury markets, there has been an increase in the use of metrics that estimate potential price volatility over a four-week period.

On Friday, the Ice BofA Move index – which gauges 30-day expected volatility in U.S. Treasury bonds – reached its peak level since October 2023, soaring to an unprecedented 135%.

An escalation in the instability of U.S. Treasury bonds, crucial for international leveraged loans, frequently results in reduced availability of funds (liquidity drying up), prompting traders to decrease their investments in high-risk assets like cryptocurrencies.

In other parts, the one-week projected volatility for the EUR/USD exchange rate, which is the most traded currency pair, reached a peak not seen since the mini-banking crisis in the U.S. during March 2023.