This month saw significant net inflows into Bitcoin Exchange Traded Products (ETPs), potentially reflecting hedge funds engaging in basis trades (possibly going long on Bitcoin ETPs and shorting Bitcoin futures).

The overlap between crypto and AI is growing, bringing new developments such as autonomous chatbots promoting meme coins. Although these projects may seem whimsical, they illustrate blockchain’s potential to mediate economic value between humans, AI agents, and connected devices.

Key Takeaways:

• As interest in the U.S. election grows, Bitcoin rose in October. While polls show a highly competitive race for the White House, asset market movements and prediction markets imply that investors now view Trump’s chances of winning as higher.
• Bitcoin ETPs experienced large net inflows this month, with some of the demand likely driven by hedge funds engaged in basis trading (possibly long on Bitcoin ETPs and short on Bitcoin futures).
• The fusion of crypto and AI technologies continues to create lasting impacts, including autonomous chatbots that promote meme coins. While easy to dismiss as novelty, these projects reveal blockchain’s potential to facilitate value exchange among people, AI agents, and connected devices.

October Market Shows Stronger Odds of Trump Election Victory:

On Tuesday, November 5, U.S. voters head to the polls in an election likely to have major implications for digital assets. While polling indicates a close contest for the White House, investor sentiment shifted last month toward a Trump victory. For example, by late September, blockchain prediction market Polymarket’s odds had Vice President Harris slightly ahead of Trump. By late October, Polymarket’s odds for a Trump win had risen to 65% (Figure 1). Although prediction markets aren’t infallible and Harris could still win, investors’ expectations of a Trump victory appear to have lifted asset markets over the past month.

Figure 1: Prediction Markets Show Increasing Odds for Trump to Win the Election

Though not a direct forecast, Grayscale Research observes that October’s asset returns seem to align with a “Trump trade” (Figure 2). Macroeconomically, a stronger dollar and weaker renminbi may reflect concerns over tariff risks. Rising bond yields (falling bond prices) and increasing gold prices could also indicate expectations for higher budget deficits and inflation under a Trump presidency. Bitcoin rose 9.6% this month, making it one of the best-performing assets on a risk-adjusted basis. Trump’s support for Bitcoin and crypto might explain Bitcoin’s rally, as markets expect a regulatory environment more favorable to Bitcoin. Additionally, Bitcoin, similar to gold, could be responding to anticipated macroeconomic shifts under Trump’s policies.

Figure 2: Bitcoin Among October’s Best-Performing Assets

The U.S. election could significantly affect the digital asset industry. The next president and Congress may establish new cryptocurrency regulations and potentially alter tax and spending policies impacting financial markets. Grayscale Research notes that Senate control could be especially impactful for crypto, given its role in confirming presidential appointees to agencies like the SEC and CFTC.

At the voter level, data reveals bipartisan interest in cryptocurrency, with Democrats slightly more inclined to hold Bitcoin than Republicans. Both parties feature candidates who support crypto innovation. Regardless of the winning party, Grayscale Research believes bipartisan legislation may be the best path forward for the U.S. digital asset sector.

Bitcoin Arbitrage Trading Dulls Spot Bitcoin ETP Net Inflows’ Effect on Price Gains

In October, demand rose for U.S.-listed spot Bitcoin Exchange Traded Products (ETPs). As of October 31, total net inflows hit $5.3 billion, up from $1.3 billion in September, marking the highest level since February. Since spot Bitcoin ETPs launched in January, total net inflows have surpassed $24.2 billion, with U.S.-listed ETPs now holding around 5% of Bitcoin’s total supply.

This year’s net inflows into spot ETPs could put upward pressure on Bitcoin prices. However, the effect may not be straightforward, partly due to the growing popularity of hedge fund trading. Specifically, hedge funds (or other institutional investors) may buy Bitcoin ETPs while shorting an equivalent dollar amount in Bitcoin futures. This approach, known as “basis trading” or “arbitrage trading,” aims to profit from differences between spot and futures prices. Since this strategy involves both buying (via ETPs) and selling Bitcoin (via futures), it’s unlikely to significantly impact Bitcoin’s market price.

There’s no precise measurement yet, 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 January. Based on this estimate, Grayscale Research suggests that out of the $24.2 billion net inflows into U.S.-listed spot Bitcoin ETPs this year, about $5 billion might have been used to pair spot and futures positions, thus potentially limiting Bitcoin price increases (see Figure 3).

Figure 3: Hedge Funds May Be Pairing Bitcoin ETP Longs with Futures Shorts

Blockchain as a Value Platform for AI Agents

Despite Bitcoin’s notable price increase in October, returns across other crypto sectors were modest. For example, the Cryptocurrency Sector Market Index (CSMI), a composite index developed in collaboration with FTSE/Russell, dropped around 6% (see Figure 4). The utility and services sectors in crypto, including tokens linked to decentralized AI technology like FET, TAO, RENDER, and AR, were among the worst performers, falling after early-year gains.

Figure 4: Utility and Services Sectors Trail Other Crypto Segments

Decentralized AI remains a hot topic in crypto, thanks to new applications showcasing “AI agents” that use blockchain for independent tasks and transactions.

One standout example is Truth Terminal, an AI chatbot created by researcher Andy Ayrey. With an account on X (formerly Twitter), the chatbot interacts autonomously with other X users. Notably, Truth Terminal created its meme coin, GOAT, which it deposited into a blockchain wallet. It then promoted the coin to its social media followers, prompting significant public interest. The GOAT meme coin’s value subsequently soared, leading many to call Truth Terminal the “first AI millionaire agent.” Though this project is light-hearted, it demonstrates how AI agents can understand incentives and leverage blockchain to exchange value. Other innovative projects are exploring shared AI agents, with more use cases expected.

While still in the early stages, decentralized AI applications hint at blockchain’s potential as core infrastructure to facilitate value exchanges between humans, AI agents, and physical devices. Compared to traditional payment systems, permissionless blockchains may provide AI agents with a more flexible way to gather and transfer resources.

Conclusion

The U.S. election on November 5 could heavily influence both crypto and traditional financial markets in the short term. Results in the White House and Congress may affect the U.S. cryptocurrency industry’s growth trajectory. Encouragingly, digital assets enjoy bipartisan support, with macro trends favouring Bitcoin adoption and recent technological advances—especially at the intersection of crypto and AI. Regardless of the election’s outcome, we’re optimistic about crypto’s continued progress in the U.S.

Join Odaily’s Official Community

Telegram Subscription Group: https://t.me/Odaily_News
Telegram Discussion Group: https://t.me/Odaily_CryptoPunk
Official Twitter Account: https://twitter.com/OdailyChina

Disclaimer:

1. This article was reproduced from Odaily, and the copyright belongs to the original author [@web3 golem]. For concerns about this reproduction, please contact the Gate Learn team, and they will promptly address it.
2. Disclaimer: The opinions expressed in this article are those of the author and do not constitute investment advice.
3. Other language versions of this article have been translated by the Gate Learn team and should not be copied, distributed, or plagiarized without mentioning Gate.io.