Original article: Grayscale Research; Translated by Golem; Edited by Hao Fangzhou
Produced by | Odaily Planet Daily
Summary of key points:
- Bitcoin has rallied in October as markets have focused on the U.S. election. Polls show a tight race for the White House, but changes in financial assets and implied odds in prediction markets suggest investors now see a higher chance of Trump winning.
- Bitcoin exchange-traded products (ETPs) have seen significant net inflows this month, although some of the new demand may reflect risk-reduction trades by hedge funds (who may be long Bitcoin ETPs and short Bitcoin futures).
- Developments at the intersection of crypto and AI technologies continue to have far-reaching implications, including autonomous chatbots promoting their own meme coins. While it’s easy to overlook the significance of these projects due to their playfulness, they demonstrate that blockchain technology can be an effective tool for mediating economic value between humans, AI agents, and networked physical devices.
In October, the market expected Trump to win the election
US voters will head to the polls on Tuesday, November 5, in an election that is expected to have a significant impact on the digital asset industry. While polls show a tight race for the White House, investor expectations appear to have shifted toward a victory for former President Trump over the last month. For example, at the end of September, odds on blockchain-based prediction market Polymarket (https://polymarket.com/) showed Vice President Harris had a slight edge over Trump at the time. However, by the end of October, Polymarket's presidential election market showed a 65% probability of Trump winning (Chart 1). Prediction markets are not infallible, and Harris could win the election, but the shift in investor expectations for a Trump victory appears to have driven asset markets higher over the last month.
Figure 1: Prediction markets show Trump has a better chance of winning the election
Whether financial markets expect a higher probability of a Trump victory can only be inferred indirectly, but Grayscale Research believes that cross-asset returns in October are consistent with the "Trump trade" (Figure 2). From a macro perspective, the appreciation of the US dollar and the depreciation of the RMB may reflect people's increased awareness of tariff risks. Similarly, bond yields rose (bond prices fell) and gold prices rose, which may reflect expectations of larger budget deficits (https://www.grayscale.com/research/reports/potential-implications-of-us-election-outcomes-on-digital-asset-markets) and higher inflation during the Trump presidency. Bitcoin appreciated 9.6% this month and was one of the better performing assets on a risk-adjusted basis. Trump is enthusiastic about Bitcoin and cryptocurrencies, so the rise in Bitcoin prices may reflect the market's expectations of a government-supportive regulatory environment for Bitcoin. Additionally, Bitcoin, like gold, may be reacting to potential macro policy changes under the Trump presidency (https://www.grayscale.com/research/market-commentary/bitcoin-and-the-macro-policy-issues-of-biden-v-trump2).
Figure 2: Bitcoin was one of the best performing assets in October
The outcome of the U.S. election could have a significant impact on the digital asset industry. The next president and Congress could enact legislation targeting cryptocurrencies and could change tax and spending policies that affect broader financial markets. Grayscale Research believes that a change in Senate control could be particularly relevant to cryptocurrencies given the Senate’s role in confirming presidential appointments to key regulators, such as the chairmen of the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC).
However, at the voter level, data shows that cryptocurrency is a bipartisan concern, with Democrats slightly more likely to own Bitcoin than Republicans. In addition, specific candidates from both parties have expressed support for cryptocurrency innovation. Regardless of which party is in power, Grayscale Research believes that comprehensive bipartisan legislation may be the best long-term solution for the U.S. digital asset industry.
Bitcoin arbitrage trading weakens the impact of spot Bitcoin ETP net inflows on price increases
Demand for spot Bitcoin exchange-traded products (ETPs) listed in the United States increased in October. Net inflows totaled $5.3 billion as of October 31, up from $1.3 billion in September and the highest level since February. Since the launch of spot Bitcoin ETPs in January, net inflows have totaled more than $24.2 billion, and U.S. ETPs currently hold about 5% of the total Bitcoin supply.
Net inflows into spot ETPs this year could put upward pressure on Bitcoin prices. However, the relationship may not be one-to-one, in part because of the growing popularity of hedge fund trading. Specifically, a hedge fund (or other sophisticated and/or institutional investor) can buy a Bitcoin ETP while simultaneously shorting an equivalent amount of USD in Bitcoin futures. This strategy seeks to profit from the difference between spot and futures prices and is sometimes referred to as a Bitcoin "basis trade" or "carry trade." Because the strategy involves both buying Bitcoin (via the ETP) and selling Bitcoin (via futures), it should not have a significant impact on Bitcoin's market price.
There is no exact measure, but a report from the U.S. Commodity Futures Trading Commission (CFTC) noted that some hedge funds have increased their net short positions in Bitcoin futures by nearly $5 billion since the launch of spot Bitcoin ETPs in January. Based on this estimate, Grayscale Research believes that about $5 billion of the $24.2 billion in net inflows into U.S.-listed spot Bitcoin ETPs this year may have been used to match spot/futures positions and therefore may not have contributed to the rise in Bitcoin prices (Chart 3).
Chart 3: Hedge funds may pair Bitcoin ETP longs with futures shorts
Blockchain becomes the value intermediary of AI agents
Despite the significant price gains for Bitcoin in October, other crypto segments have had lackluster returns. For example, the Crypto Sector Market Index (CSMI), a composite index we developed in partnership with FTSE/Russell, fell by about 6% (Exhibit 4). The worst-performing segment was the Utilities and Services crypto sector (https://www.grayscale.com/crypto-products/grayscale-crypto-sectors/utilities-and-services). This diverse crypto sector includes many tokens related to decentralized AI technology, some of which have retreated this month after early-year gains, including FET, TAO, RENDER, and AR.
Figure 4: Utilities and Services sectors lag behind other crypto subsectors
Despite a pullback in some token valuations, the decentralized AI theme remains a focus of the crypto market. We believe this is largely due to new applications demonstrating the use of blockchain by “AI agents” – software that can understand goals and make autonomous decisions.
A key “persona” is Truth Terminal, an AI chatbot created by researcher Andy Ayrey. The chatbot has an account on X (formerly Twitter) and interacts with other X users autonomously (i.e., without any input from Andy). The innovation is that Truth Terminal expresses interest in creating a Meme coin, GOAT, and then deposits the new Meme coin into an associated blockchain address. After taking ownership of the Meme coin, Truth Terminal takes steps to promote the token to its social media followers.
Due to the strong interest in this narrative, the associated meme coin has also appreciated by about 9 times, leading many to call Truth Terminal the "first AI agent millionaire". While this project appears humorous and lighthearted, it shows that AI agents can understand economic incentives and can use blockchain to send and receive value. Other innovative projects are making breakthroughs in co-owned AI agents, and there will be many use cases in the future.
These efforts are still in their early stages, but the latest wave of decentralized AI applications may deliver on one of the promises of blockchain technology in a tangible way: it can serve as the core financial infrastructure of the future, acting as a value intermediary between humans, AI agents, and potentially a variety of physical devices. We believe that using a permissionless blockchain can be a better way for AI agents to accumulate and transfer resources than traditional payment infrastructure.
Summarize
The US election on November 5th is likely to dominate the cryptocurrency and traditional financial markets in the short term. There are important issues facing the digital asset industry, and the results of the White House and the Senate and House of Representatives may affect the development of cryptocurrency businesses in the United States to a certain extent. At the same time, we are encouraged by the bipartisan ownership of digital assets, the numerous macro trends driving Bitcoin adoption, and recent technological breakthroughs, especially at the intersection of cryptocurrency and AI. Therefore, regardless of the results of next week's election, we are optimistic that cryptocurrency will continue to grow in the United States.
