First Mover: Bitcoin Retreats Before US Election After Dominating Crypto in October

Bitcoin was lower around $13,200, retreating after reaching a fresh 2020 high near $14,100 on Oct. 31.

Tuesday's presidential election in the U.S. "is going to be the driving force for global markets," Matt Blom, head of sales and trading for the cryptocurrency-exchange owner Diginex, told clients in a note.

Analysts have warned that markets could see extreme volatility if the election results are murky, and the Federal Reserve has a regularly scheduled meeting just days afterward.

"It seems we will have to wait until after tomorrow when the U.S. goes to the polls before we see any further clarity," Simon Peters, an analyst for the trading platform eToro, wrote Monday in an email.

In traditional markets, Asian and European indexes rose and U.S. equity futures pointed toward a higher open after last week's steep drop. Oil prices fell to a five-month low, while gold strengthened 0.5% to $1,888 an ounce.

Market moves

If it seemed like an unusually bullish month for bitcoin (BTC), the markets agreed.

The oldest and largest cryptocurrency surged 29% in October, the most among the CoinDesk 20 list of top digital assets.

Litecoin (LTC) was the second-best performer in the group, with a 22% return, followed by bitcoin cash (BCH) at 16%.

CoinDesk reported around the start of the month (here and here) that digital-asset analysts were turning more bullish on bitcoin. Some traders had started rotating funds into the cryptocurrency from smaller tokens like Compound's COMP and Yearn.Finance's YFI that surged in price earlier this year amid an explosion in popularity of "decentralized finance," or DeFi.

"We are seeing a return to bitcoin dominance," said Andrew Ballinger, an analyst at Wave Financial, a digital-asset-focused investment manager based in Los Angeles and London.

The renewed interest in bitcoin, now with a market capitalization of about $250 billion, coincided with new signs of growing interest in the cryptocurrency from institutional investors as well as big companies like PayPal and Square. A resurgence of the coronavirus along with a deteriorating U.S. economic outlook kindled speculation that authorities would push to provide more fiscal and monetary stimulus; that might push up bitcoin's price, seen by many investors as a hedge against inflation.

Bitcoin's performance also stood out versus traditional assets. The Standard & Poor's 500 Index of large U.S. stocks slid 2.8% in October, and gold slipped 0.1%.

The question going forward is whether bitcoin reverts to the mean or if it gets carried up on a groundswell of investors piling into the only big trade that really seems to be working in 2020. Bitcoin is up 92% year to date, versus a 1.2% gain for the S&P 500.

The biggest losers in the CoinDesk 20 in October were Orchid (OXT), with a price decline of 25%, and 0x (ZRX), down 21%.

Bitcoin watch

Bitcoin is feeling the pull of gravity at press time, having failed to keep gains above a key hurdle over the weekend.

The top cryptocurrency is currently trading near $13,450, representing a 2.3% decline on the day. Prices reached a 33-month high of $14,093 on Saturday, shrugging off the recent coronavirus-led stock market instability.

However, the move above the June 2019 high of $13,880 was short-lived. The cryptocurrency's inability to secure a foothold in the wake of overbought readings on technical indicators seems to have disappointed chart traders and could be fueling the price pullback.

According to some analysts, the failed breakout, coupled with continued instability in traditional markets, could lead to a bigger bitcoin price drop in the short-term.

"If we consider overbought daily technicals plus failure to beat the 2019 high resistance and a risk-off backdrop, it is perfectly reasonable to anticipate the possibility for a healthy decline ahead," Joel Kruger, a currency strategist at LMAX Digital, told CoinDesk.

Besides, many fear the results of the election will not be immediately clear, resulting in a period of uncertainty for the markets.

All these factors considered, the possibility of bitcoin revisiting the former hurdle-turned-support of $12,500 cannot be ruled out.

That said, a price crash looks unlikely, as the cryptocurrency currently has a strong bid from institutions, trader and analyst Nick Cote told CoinDesk last week.

Token watch

Filecoin (FIL): Crypto miners paying interest up to 40% to borrow decentralized data storage provider's FIL tokens, to meet required proof-of-stake threshold.

Uniswap (UNI): Quorum not achieved on governance proposal to airdrop $40M of UNI tokens to users who interacted with DeFi market maker through third-party apps, despite apparently overwhelming support.

Horizen (ZEN): Crypto lender Celsius works with Horizen, developer of privacy token ZEN, to run experiments for decentralized way of proving reserves (CoinDesk)

What's hot

Chinese central-bank governor more than 4M transactions totaling about 2B yuan ($299M) have been conducted using digital yuan. (CoinDesk)

Bitcoin mining difficulty set to drop by an estimated 15%, as blockchain network automatically rebalances from decrease in hashpower due to end of China's rainy season (HASHR8)

ECB's Lagarde seeks public comments on digital euro, implying broad retail offering is now on table (CoinDesk)

Australian central bank partnering with multiple prominent domestic banks to explore possible use of digital currency (CoinDesk)

Analogs

The latest on the economy and traditional finance

Bank of England expected this week to increase size of asset-purchasing program by 100B pounds to £845T ($1.1T) (Reuters)

Activity in China's factory sector accelerates at fastest pace in decade as domestic demand surges (Reuters)

Former U.S. Food and Drug Administration chief warns that U.S. is at "beginning of the steep part of the epidemic" (CNBC)

Rich buyers fleeing cities and coronavirus fuel housing boom in Montana, as remote-working shift untethers high-paying jobs from offices (Bloomberg)

Chinese President Xi calls for independent and controllable supply chains to ensure industrial and national security, as U.S. moves to cut country off from key exports (Bloomberg)

U.S. billionaires, numbering roughly 200 people, got $1T richer during Trump's term (Bloomberg)

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