TL;DR
Last week we explored Polymarket as an interesting experiment that had been playing out throughout the US election. Polymarket consistently showed far higher odds of a Trump win than the 50-50 polls otherwise suggested. While many doubted the prediction market’s accuracy, the proof is in the proverbial pudding as Trump outperformed nearly all traditional pundit expectations, sweeping all 7 swing states, winning 312 electoral college votes, and likely also even the popular vote. As I’m sure our readers are aware, the response by the markets has been nothing short of explosive, with BTC up nearly 30% since election night and sitting just shy of $90,000 at the time of writing. (Note: if this is news, please reach out, we should talk).
Now, most in the industry have turned their attention to what a Trump presidency actually means for digital assets, and now that it is a reality. We are hosting a webinar next week (register here) to share our thoughts in more detail, and to that end, will use this week’s post to highlight a few impacts and the general activity we have been seeing over the past week.
40% chance BTC hits $100,000 in November?
Whether or not Polymarket’s predictive performance can be replicated going forward, the betting public’s money on Bitcoin will continue to hit all-time highs over the next several weeks. Currently, the market is pricing in a 39% chance BTC hits $105,000 and a 67% chance of clearing $95,000 by the end of the month. It is important to note that predictions like this simply reflect a snapshot in time and are highly likely to shift significantly based on market movements.
Source: Polymarket
I want to take this opportunity to plant one seed in readers’ minds if it is not there already: in addition to the broad-based success of most pro-crypto candidates on both sides of the aisle, incoming president Trump has stated that he wants to create a national strategic Bitcoin reserve. Senator Lummis’ proposed BITCOIN Act in support of this outlines a 1-million BTC target for the US to acquire, equal to roughly 5% of all supply. For reference, that is the same amount that the ETFs have amassed in total since January.
There are only 21,000,000 BTC that will ever be in existence. When the spot Bitcoin ETFs launched in January, we highlighted a unique aspect of BTC: holders do not sell Bitcoin. 65% of BTC has not moved in over 1 year, and 31% has not moved in over 5 years. This means the 1-million BTC target of the US government should not be measured against the 21M max cap. Rather, it should be measured against the potential available supply, a significantly smaller float and likely closer to half. As such, the US may potentially be targeting 10-15% of the entire liquid supply.
Source: Glassnode
From a game-theoretic point of view – what does that mean for every other nation-state or institutional allocator on the planet? There are few times in history where the possibility to front-run such a singularly massive global dislocation in demand for a verifiably scarce asset.
Is this a given? No, but what chance did you, or most investors, ascribe when Trump first said that? And how about now? The chance of this happening is undeniably higher than it was just a few weeks ago.
Wall Street appears to be taking this seriously. As Bloomberg’s Eric Balchunas pointed out, the Bitcoin exposure that Wall Street has access to (specifically ETFs, Coinbase, Microstrategy) is getting bid off the charts. Below is the total trading volume on a single day, November 11, of these 15 products –$38B in total.
Source: Eric Balchunas via x.com
There is undoubtedly a sense of euphoria in the market and that should typically give one pause. But much of the optimism and incredible activity we are seeing largely seems to stem from the general sense that there will finally be legislative, regulatory, and governmental support for this industry in the US, reversing a multi-year trend of active resistance. It is not remotely hyperbolic to say that digital assets have gotten to where they are today despite the US regulatory environment, not because of it, and any clarity and developments here will serve to help bring talent and capital back to the space, which should be viewed as a positive for everybody involved.
It is important to remember that decentralized finance and most of the leading digital asset applications have only existed in a negative US crypto environment. All of the convoluted tokenomic structures, governance designs, “buy back and burns”, and heavy geofencing of protocols to exclude the US market only arose as a result of the lack of clarity and regulation-by-enforcement that has been the norm. The technology and potential user base have been bridled over the past few years and much of the euphoric sentiment this week reflects the expectation that it is all coming to an end.
Will it be up only from here? No – expect severe drawdowns to still occur. But it does seem that we may be entering a new period of price discovery and development, and where this current market run ends is anyone’s guess. But given the general maturation of the market, the trend towards increasingly more drawn-out bull markets over time is clear.
Source: Previous BTC bull markets and associated drawdowns via Glassnode.
The ultimate height reached will assuredly be lower on a relative basis than previous cycles from a trough-to-peak perspective. Though 4 data points are inadequate to draw any strong conclusion, it is obviously far more difficult to 100x a trillion-dollar asset than a billion-dollar asset. Interestingly, ignoring the very first ‘bull’ cycle in 2010-2011, each successive relative return has been ~20% of the prior cycle. We are already at that point in this cycle. If this 4-data-point trend holds, there may not be that much juice left to squeeze out of this run given BTC is already up 4x from its 2022 lows. However, it is worth noting that “juice” could still be 20% higher from here ($110K BTC) if this cycle returns just 25% of what it did last cycle, which would still largely keep with overall trends. Even if this is where BTC caps out, the longer tail of digital assets - where we at Triton spend our attention - will have incredible opportunities to realize substantial returns on investment, far and above that offered by BTC.
Conclusion
It appears that we may be entering a new paradigm for the industry, where the US’s priority is to support the development of the technology rather than prosecute it. Extrapolating patterns from previous cycles indicate we are closer to the end of this cycle than the beginning, but there are signs that we may find ourselves bucking this trend in a major way:
