Blockchain Predictions - Polymarket and the 2024 Election
Executive Summary
- Market trading color: Price action post assassination attempt, supply overhang thing of the past, ETHBTC, ETF fee
- Theme of the week – Polymarket dominates U.S. election predictions with $400M trades in 2024, market anticipates changes in the presidential election
- Sector commentary: Bitcoin surges amid Mt. Gox recovery, institutional interest; Ethereum gains with upcoming ETF launch
Market Trading Color (Nolan Aibel)
What a week and change in sentiment from last week it has been for digital assets. Apparently, all it took for the market to catch fire was an attempted assignation of former President Trump. Since our update last Thursday, $BTC is up over 10.25%, with the majority of this positive price action coming post the Saturday shooting when $BTC was trading below $58,000. With Trump surviving the attack, his odds of re-election significantly increased, setting up the potential for a more pro-crypto political landscape. He further strengthened this when he announced JD Vance as his VP nomination. A noted crypto advocate. The Democratic campaign has also softened their stance on the industry as they recently held meetings with crypto leaders. Regardless, this positive price action has flipped sentiment and to show for it, the Fear & Greed is back in the 60’s, showing “Greed” after we detailed it hitting 28 last week, its lowest levels since Jan ’23.
Aside from the seeming political shift, core US inflation falling and the increased likelihood for a September rate cut has been bullish for crypto and risk assets alike. Couple this with the muted effects of the once scary Bitcoin supply overhang and the market is set up for success heading into the fall. The German government sold almost 50,000 BTC ($2.75B) for an average price of $55,000. The market absorbed this and a week later is above $65,000. This has eased people’s worries of the impeding sales stemming from Mt. Gox distributions that are set to hit wallets from exchanges Kraken and Bitstamp in the coming weeks. This shift was noted in BTC ETF flows over the past week as the 10 products took in a combined $1.17B over the 5 trading days. Yearly net flows have surpassed $16B, setting a new all-time high.
$ETH continues to largely follow Bitcoin despite ETH ETFs rumored to officially begin trading this coming Tuesday, July 23rd. While ETHBTC took a significant jump post initial spot ETF approval in May, the ratio remained rangebound and even slightly declined since despite the Bitcoin supply overhang. Perps open interest has fallen from highs over $13B to $10.8B. CME futures OI is still muted at $1.22B, fourth on the exchange listed and firmly behind leader Binance. This leads us to still believing the market is undervaluing $ETH and how these ETF products will shine light on the role it plays in the ecosystem.
Source: Kaiko
All the ETF providers announced their fees. Grayscale is keeping ETHE at 2.5%. They are divesting 10% of shares into $ETH ahead of the launch.
Source: StoneX Digital
Polymarket and the U.S. Presidential Election
Polymarket, a predictive market platform operating on the Ethereum blockchain with smart contracts on Polygon, ensures transparency and security for users creating markets, placing bets, and trading shares. Despite operating primarily outside the U.S. due to regulatory constraints, Polymarket has rapidly become a leading prediction market for U.S. elections since its founding in 2020, generating over 80% of global predictions related to these elections. With $70 million in venture capital, the platform has seen over $260 million worth of predictions on the 2024 election alone and more than $400 million in trades this year, including $8 million on the day of the first presidential debate. As of July 14, 2024, Polymarket recorded a volume of $9.6 million, 4,214 active wallets, and a total volume of $169 million over the past month, with whales accounting for about 35% of the volume since April 2024.
Source: Dune Analytics @rchen8
Investors are increasingly turning to platforms like Polymarket to gauge sentiment and expectations leading up to significant events, such as the presidential election. Current odds on the platform show a 2% probability of Biden announcing his resignation by July 31, with $2 million bet on this outcome. Biden holds a 70% chance of being the Democratic nominee in 2024, with Kamala Harris at 17%. Harris also leads as the Democratic VP nominee at 81%, followed by Roy Cooper and Josh Shapiro at 6% each, with $1.5 million bet on these outcomes. For the Republican VP nominee, Vance had $84 million bet before the announcement.
Trump before the Debate
In the months leading up to the debate, polls indicated that Donald Trump had a 1% lead over Joe Biden, though voters were generally dissatisfied with both candidates. Nearly half of the respondents expressed complete lack of confidence in Biden's physical or mental fitness or in Trump's ability to act ethically in office. Additionally, 43% of respondents doubted Trump's respect for democratic values. It's rare for even one major-party candidate to be this unpopular—let alone both. On the day of the debate, national polling averages showed Biden and Trump tied. However, since then, they have diverged significantly, with Trump now holding a two-point lead.
During the debate, prediction markets reacted in real-time. PredictIt, a political betting market, gave Trump a 61% chance of winning by the end of the debate, up from 53% at the start. This weekend's assassination attempt on Trump may have bolstered his campaign. Crypto Twitter has already made hundreds of meme coins trading in hundreds of millions of dollars highlighting a more interested and motivated fan base. The attack also complicates the Democrats' ability to run attack ads in the coming weeks, while Republicans can leverage the situation to blame fearmongering rhetoric from senior Democrats for the incident.
Despite some polls indicating that Biden's poor debate performance has not significantly harmed his chances, polls in several swing states have shifted in Trump's favor. Michigan and Wisconsin have flipped from a Biden lead to a small Trump advantage, according to FiveThirtyEight polling averages. In Pennsylvania, where Biden invested heavily in advertising, the gap between the candidates widened after the debate, with Trump taking the lead. Although no new polls have been released since the assassination attempt, Trump's odds of winning the election have risen sharply in betting markets. As of now, the odds on Polymarket have jumped to 72%.
Source: Polymarket
The Democratic nominee landscape on Polymarket has shown notable shifts in recent months. President Joe Biden was averaging around a 45% chance of securing the nomination until mid-May when his odds dipped below 40%. This decline has sparked discussions about his potential resignation and the viability of other candidates. Meanwhile, Vice President Kamala Harris has seen her probability fluctuate, reaching as high as 19% just last week, reflecting increasing speculation about her potential candidacy. These movements indicate a dynamic race within the Democratic Party as various factors influence the betting markets.
Source: Polymarket
Both Biden and Trump are older than any previous U.S. president. The next significant events in the U.S. election include the formal party nomination conventions in July and August, followed by a second debate in September. At a press conference on Thursday at the end of a NATO summit, Biden insisted he was not stepping down, stating, "If I slow down [and] I can’t get the job done — that’s a sign I shouldn’t be doing it. But there’s no indication of that yet." According to Polymarket, there is currently a 38% chance that Biden will drop out of the presidential race, with $15.6 million in bets placed on this outcome.
Source: NBC National Poll
Nashville as a Catalyst
Former U.S. President Donald Trump is scheduled to speak at a Bitcoin conference in Nashville later this month, despite injuries from a recent assassination attempt. Our team is monitoring whether Trump's appearance will signal a bullish move for the crypto industry, as it signifies a step toward legitimacy and could act as a catalyst for higher crypto market valuations. Cryptocurrency has now become a significant part of the campaign trail, moving beyond mere mentions to actively target specific voting demographics and fundraising groups.
Although only 7% of American adults used or held crypto in 2023, and 28% of Republicans have bought or owned crypto at some point, the industry's inclusion in Trump's reelection strategy is noteworthy. Approximately 52 million Americans own crypto, reflecting its growing presence. The GOP has integrated crypto into its official platform, highlighting it under the "Champion Innovation" subpoint. The Republicans have positioned themselves as the pro-crypto party, with actions like Florida Gov. Ron DeSantis's anti-CBDC declarations and efforts in the House to overturn President Biden's veto of a pro-crypto resolution.
As a side note, the StoneX Digital team will be attending the Bitcoin Conference 2024 in Nashville, Tennessee, from July 25-27, 2024. Our team will be hosting several events and informal meetings throughout the conference. If you plan to attend, please reach out to any of the team or via the StoneX Digital group email below to connect: stonexdigital@stonex.com
Market Analysis: The Impact of Political Events
Victor Niederhoffer, along with Steven Gibbs and Jim Bullock, conducted a study in 1970 titled "Presidential Elections and The Stock Market" to test the hypothesis that the market prefers Republican presidents. They found that the stock market rose an average of 1.12% the day after a Republican win, whereas it declined by an average of 0.81% following a Democrat win. They observed similar trends in market movements during the week and month after the election. However, when they examined market returns by the year of the administration and the party in power, they found no significant long-term differences in market performance between Republican and Democratic administrations.
In a more recent study, Maurizio Montone (2022) expanded on this research by exploring the effect of nonpartisan political views on stock prices using Gallup’s presidential approval ratings. Montone's findings suggest that large net disapproval of the U.S. president is followed by low stock returns, particularly during times of high political uncertainty and low market-wide sentiment. This supports the hypothesis that high presidential disapproval leads to overpricing and subsequently low returns. Montone's study further explains that nonpartisan political opinions, much like party affiliation, have a substantial impact on stock prices, offering additional insights that align with and extend the observations made by Niederhoffer, Gibbs, and Bullock.
Lastly, research by Trevor Jennewine, examining the S&P 500 since its inception in 1957, found a median Compound Annual Growth Rate (CAGR) of 9.3% under Democratic presidents and 10.2% under Republican presidents. However, when analyzing yearly returns rather than the entire presidency, the relationship flipped, giving Democrats the edge. This type of analysis might be useful for political campaigns, as a politician can claim their party is beneficial for the stock market, but it is not particularly useful for investors due to the lag between policy implementation and their effects on markets.
Sector Commentary
- Layer One / Altcoins
- Bitcoin ($BTC): Bitcoin eyes Mt. Gox recovery amid warning over BTC price dip to $58K (link)
- Bitcoin ($BTC): BlackRock’s Larry Fink: Bitcoin Is ‘Legitimate Financial Instrument' (link)
- Bitcoin ($BTC): Mt. Gox shifts $9B in BTC, market braces for impact (link)
- Bitcoin ($BTC): Bitcoin bears trapped, but can BTC price surpass $70K by August? (link)
- Bitcoin ($BTC): Mt. Gox repayments will only cause Bitcoin sell pressure among ‘paper hands’ — Analyst (link)
- Bitcoin ($BTC); Ethereum ($ETH): Bitcoin rebound continues to near $65,000, ether gains amid ETF launch news (link)
- Ethereum ($ETH): Institutions are more bullish on Ether than retail ahead of ETH ETF launch (link)
- Ethereum ($ETH): Ether Hedging Activity Picks Up as U.S. ETF Debut Nears (link)
- Solana ($SOL): Crypto Traders Search for Clues in Solana's Triangle Pattern (link)
- Worldcoin ($WLD): Sam Altman's Worldcoin Surges 15% as Investor and Team Lockup Extended (link)
- Altcoins: CoinDesk 20 Performance Update: NEAR and XRP Lead as Index Posts Modest Gain (link)
- Altcoins: Meme Coins Outperform BTC, ETH and SOL as Traders Rotate Holdings (link)
- DeFi
- Blockworks Lightspeed Newsletter: Solana’s DeFi activity keeps expanding (link)
- Defi Protocol LI.FI Struck by $8M Exploit (link)
- Stripe enables Bitcoin, Ether and Solana crypto purchase options in EU: report (link)
- Jack Dorsey’s hardware wallet Bitkey to integrate MoonPay for bitcoin purchases (link)
- Op-Ed: Decentralized exchanges are carving out a significant slice of the crypto trading pie (link)
- Web3 / AI / NFTs
- Protocol Village: Ava Protocol Launches Mainnet on Ethereum as EigenLayer AVS (link)
- Polygon's New ZK Proving System, 'Plonky3,' Comes as Open-Source Toolkit (link)
- Uniswap Labs publicly launches wallet browser extension supporting 11 blockchains (link)
- Crypto-AI startup Mira raises $9 million in seed funding (link)
- MoonPay and Christie’s dip into AI-generated art with new ‘Web3 Tools’ (link)
- RWA / Tokenization / Metaverse / Gaming
- Tokenized US Treasurys could reach $3B by end of year (link)
- MakerDAO's $1B Tokenized Treasury Investment Plan Draws Interest from BlackRock's BUIDL, Ondo, Superstate (link)
- Why Blockbuster Games Will Soon Be Built on Modular Appchains (link)
- ‘Catizen’ Studio Secures Funding as Telegram Game Hits 25 Million Players (link)
- Digital Infrastructure: Capital Markets / Exchanges / DAOs / Mining
- Blockworks Empire Newsletter: Tracking PayPal’s rise as a crypto company (link)
- Op-Ed: Trump’s Speech at Bitcoin Conference Will Mark a Pivotal Moment for Crypto (link)
- Cipher, Coinbase and MicroStrategy lead crypto stock surge following bitcoin's bounce back (link)
- Memecoins, RWA, AI lead crypto narratives in Q2 2024 (link)
- US spot bitcoin ETFs see $300 million inflows on seventh consecutive day of positive flows (link)
- SEC signals possible ETH fund launches next week: Sources (link)
- Ether Spot ETFs Could See Up to $5.4B of Net Inflows in First 6 Months: Citi (link)
- SEC has given ‘preliminary approval’ to at least 3 ETH ETF issuers: Report (link)
- Ether ETF opens the floodgates for Solana ETFs and crypto products — Analyst (link)
- U.S.-Listed Bitcoin Miners' Share of Global Hashrate Reached Record in July: JPMorgan (link)
- Loka Launches Bitcoin Mining Pool for Institutional Investors With Support From Hashlabs (link)
- Coinbase will not mention ‘crypto’ in five years: Avichal Garg, X Hall of Flame (link)
- Japan's Metaplanet buys additional $1.2 million worth of bitcoin, shares surge 26% (link)
- Kraken receives bitcoin from Mt. Gox Trustee, payouts anticipated in 7-14 days (link)
- A Crypto Trading Clampdown Expands Beyond Binance to Another Large Exchange (link)
- Plaintiffs File New, Slimmed Down Complaint in Class Action Lawsuit Against Tether (link)
- Satoshi Shame: Craig Wright Ordered to Declare He Isn't Bitcoin Creator (link)
