October 2024: Bitcoin Brushes All-Time High
Research Team
Last Updated: 11/1/2024 | 11 min. read
Bitcoin gained in October as markets looked ahead to the U.S. elections. Polls point to a tight race for the White House, but shifts in financial assets and the implied odds from prediction markets suggest investors now see higher odds of a Trump win.
The intersection of crypto and AI technologies continued to bring thought-provoking developments, including autonomous chatbots promoting their own memecoins. While it can be easy to dismiss these projects due to their playful nature, they are demonstrating that blockchain technology could be an effective tool for intermediating economic value among humans, AI agents, and networked physical devices.
U.S. voters will go to the polls on Tuesday, November 5, in an election that is expected to have significant implications for the digital assets industry. Although polling suggests a tight race for the White House, investor expectations seemed to have shifted over the last month toward a victory for former President Trump. For example, at the end of September, odds from blockchain-based prediction market Polymarket said that Vice President Harris held a slight edge over Trump at the time (for background, see Polymarket: Crypto’s Election-Year Breakout App). However, by the end of October, Polymarket’s presidential election market suggested that Trump had a 65% probability of victory (Exhibit 1). Prediction markets are not infallible, and Harris may win the election, but the shift in investor expectations toward a Trump victory seemed to drive asset markets over the last month.
Exhibit 1: Prediction markets assigned higher odds to a Trump win
Exhibit 2: Bitcoin among the outperforming assets in October
Demand for the U.S.-listed spot Bitcoin exchange-traded products (ETPs) increased during October. Through October 31, net inflows totaled +$5.3bn, up from +$1.3bn in September and the highest since February. Since the launch of spot Bitcoin ETPs in January, net inflows have totaled +$24.2bn, and the U.S. ETPs now hold about 5% of the total Bitcoin supply.
Net inflows into the spot ETPs this year have likely put upward pressure on Bitcoin’s price. However, the relationship may not be one-for-one, in part due to an increasingly popular hedge fund trade. Specifically, a hedge fund (or other sophisticated and/or institutional investors) may buy a Bitcoin ETP and simultaneously sell short an equivalent Dollar amount of Bitcoin futures. This strategy is designed to benefit from the difference between spot and futures prices and is sometimes referred to as the Bitcoin “basis trade” or “carry trade.”[3] Because the strategy involves both buying Bitcoin (through the ETP) and selling Bitcoin (through futures), it should not have a meaningful impact on Bitcoin’s market price.
Exhibit 3: Hedge funds may pair Bitcoin ETPs longs with shorts in futures
Although these are still early-stage projects, the latest wave of decentralized AI applications may deliver on one of the promises of blockchain technology in a tangible way: that it can serve as the core financial infrastructure for the future, which will need to intermediate value between humans, AI agents, and likely a wide array of physical devices. We believe that using permissionless blockchains can be a superior way for AI agents to accumulate and transfer resources compared to traditional payments infrastructure.
The U.S. election on November 5 will likely dominate crypto and traditional financial markets over the short term. There are important issues on the line for the digital assets industry, and outcomes for the White House and both chambers of Congress could affect crypto business development in the U.S. on the margin. At the same time, we are encouraged by the bipartisan ownership of digital assets, by the many macro trends driving Bitcoin adoption, and by recent technological breakthroughs, particularly at the intersection of crypto and AI. As a result, we are optimistic that crypto will continue to develop in the United States, regardless of the election outcomes next week.
[3] For example, the November CME Bitcoin futures contract is currently about 10% (annualized) above the Bitcoin spot price. At the time of expiry of the futures contract, the two prices need to be the same. Therefore, this structure can generate returns as the two prices converge.
[4] Referred to as “leveraged funds” in the report.
[6] Artemis. Examples are chosen for illustrative purposes as large AI-related assets by market cap and large negative contributions to the Utilities and Services Sector in October 2024.
[9] Source: Artemis. Return from Oct 13 through Oct 31, 2024.
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