Americans vote tomorrow and prediction markets put the House at 94 percent for the Democrats, with the latest seat count at 235 against 186. The Senate is tighter at 73 percent, currently 53 against 46 with one independent, but Michigan has turned and Texas is in play. Russell does not think a significant Democrat win is priced into Bitcoin. Last week also brought the 6.5 billion dollar hack of Binance, increasingly likely to be North Korea, which moved Bitcoin around 4,000 dollars and triggered roughly 3.5 billion of outflows when withdrawals reopened, though against holdings of over 170 billion the market steadied remarkably well. Behind both sits a build up of US troops, warships and aircraft in the Middle East, which Russell expects to reignite within a week or two once the midterms are out of the way. The desk is running relatively light on risk until there is more clarity.
The Midterms: The House Looks Gone
The big event on the horizon is tomorrow’s US midterms. As Russell has said many times, the polling on this is notoriously unreliable, but right now it looks like the House has gone, with a 94 percent prediction on the Democrats taking it, and probably by quite a margin. The latest seat count he has seen is 235 against 186. That would give the Republicans and President Trump a significant headache in getting legislation through for the next couple of years.
The Senate is tighter, currently around 73 percent, with the latest numbers at 53 against 46 and one independent. There are a few swing states in play. Michigan has seen a turnaround where a Democrat crossed the aisle, and Texas is live. Russell does not believe the Democrats have won a Senate seat there since the 1980s, and it now looks like they might, effectively through an own goal, with President Trump having kicked out the incumbent senator.
| Chamber | Probability of a Democrat majority | Latest seat count |
|---|---|---|
| House | 94% | 235 Democrats, 186 Republicans |
| Senate | ~73% | 53 against 46, plus one independent |
| Swing states | – | Michigan turned; Texas in play |
I do not think that a significant Democrat win is priced into the price of Bitcoin personally, but we will see what comes from this voting tomorrow.
The Binance Hack: 6.5 Billion, and a Market That Steadied
The other big news last week was the 6.5 billion dollar hack of Binance, which looks increasingly likely to have been North Korea. Withdrawals from Binance reopened over the weekend and the exchange saw outflows of around 3.5 billion dollars, probably more by now. In the big scheme of things that is not very much, given Binance holds over 170 billion dollars or so of assets.
It was pretty wild at the time, and the hack created roughly a 4,000 dollar move in Bitcoin, but the market has steadied remarkably well since.
The Middle East: Waiting for Wednesday
The third event risk is the Middle East. It looks increasingly likely that once the midterms are out of the way, President Trump goes back in. There has been a build up of troops, of warships and of aircraft, and Russell thinks this could reignite within the next week or two.
With three potential Black Swan events on the horizon, the desk is running relatively light on risk until there is more clarity on what happens with the midterms and on what President Trump does next.
Data and the Fed: December Is Live
Last week’s data was again pretty strong. GDP beat, personal consumption came in on the money, and durable goods beat. The data continues to come in strong. At the Fed meeting, Warsh was talking quite hawkishly again. The December meeting is 37 days away and is without a doubt a live meeting, with Fed funds futures pricing roughly 72 to 73 percent for a hike. The market is betting they go again. One year out, Fed funds futures price a 94 percent chance of a hike, with two hikes by next December the most popular outcome, closely followed by three.
| Horizon | Hike probability | Note |
|---|---|---|
| December (37 days) | ~72 to 73% | Without a doubt a live meeting |
| One year out | 94% | Two hikes by next December the modal path, then three |
This Week: A Heavy Calendar
ISM manufacturing comes today, the midterms are tomorrow, and ISM services PMI, a number closely watched by the Fed, lands on Wednesday. Friday is a big day: average hourly earnings, non farm payrolls, the Michigan consumer expectations and sentiment numbers, and the University of Michigan inflation expectations numbers. It will be quite a big week on both data and events.
Markets: Yields Lower, Equities Rough
US Treasury yields are lower on the week. Ten years are now at 4.92 percent, down 7 basis points, and two years at 4.59 percent, down 13. That means 2s10s has actually steepened, primarily because the front end has come off so much, and it sits at 33 basis points, steeper by six points on the week.
Nasdaq had a rough week and is at 28,600, with continued concerns about the funding of AI businesses. It looks increasingly like some of the smaller AI firms are going to get completely squeezed out of access to capital. The S&P is at 7,600, down 60 on the week. Gold is down 110 at 3,905. The dollar index is not doing much at 101.8, unchanged on the week. WTI is at 101 dollars, down about a dollar, and Brent at 110, unchanged. Natural gas is at 3.08. VIX has not done much at 19, unchanged, and MOVE is at 100, down three, which is what you would expect with bond yields coming off a bit. Five year break evens are at 2.46 and ten year break evens at 2.34, neither doing very much.
Liquidity: Tightening, With Repo Stress
Liquidity is tightening. The Hilbert proprietary global liquidity indicator reads 3.23 on the five factor model and 3.27 on the six factor model. There is some stress in the repo markets and in the term premium, and across the board liquidity is shrinking a bit, which again is not great for Bitcoin in the medium term.
| Liquidity metric | Reading |
|---|---|
| Five factor model | 3.23 |
| Six factor model | 3.27 |
| Stress points | Repo markets, term premium |
| Read | Shrinking across the board; not great for Bitcoin medium term |
Bitcoin: Impaired, but Not Alarming
The Binance hack created around a 4,000 dollar move in Bitcoin and broke the first trend line support. Bitcoin is currently testing all of the moving average support, trading just above 78,000. From 78,000 down to 76,000 there is quite a bit of support. Below that the next level is 74,000, with more trend line support around 72,000, which Russell describes as quite a lot of wood to chop.
The technical position is a little impaired but, quite honestly, nothing to be concerned about. In his opinion Bitcoin is trading pretty well considering the Binance hack. The short term momentum indicators the desk tracks all went negative back on 9 October around 85,000 and remain firmly negative, so there is short term risk of another look at some of these support levels. If the market holds here, it is really at the bottom end of a 76,000 to 77,000 against 87,000 to 88,000 big range. Nothing in the technical situation is scaring him.
| BTC level | Significance |
|---|---|
| 87,000 to 88,000 | Top of the big range |
| 85,000 | Where momentum turned negative on 9 October |
| 79,000 to 79,500 | Short term resistance, next 48 hours |
| Just above 78,000 | Spot at the time of the call |
| 78,000 to 76,000 | Moving average support band |
| 77,000 | Short term support, next 48 hours |
| 75,000 | Options max pain |
| 74,000 | Next support below the band |
| 72,000 | Further trend line support |
Options and Flows: The Market Wants Puts Again
Implied volatility is trading about two points over realised. The market is back to wanting puts: five delta puts are trading around 13 points over at the money, while five delta calls carry only a slight premium at about two points over, giving a put over call premium of roughly 11 points. Maximum pain in the options market is currently around 75,000. For short term support and resistance over the next 48 hours, Russell is looking at 77,000 on the downside and 79,000 to 79,500 on the topside.
There were ETF outflows of about 200 million dollars on the week, alongside rumours that the BlackRock ETF might be targeted, which Russell does not think helps sentiment much either. In DeFi, there is 4.5 billion dollars in USDe, yielding around 5 percent.
| Volatility measure | Level | Note |
|---|---|---|
| Implied over realised | ~2 points | – |
| 5 delta puts over ATM | ~13 points | Market wants puts again |
| 5 delta calls over ATM | ~2 points | Slight premium only |
| Put over call | ~11 points | – |
| Max pain | ~75,000 | Below spot |
