coindesk.com
Bitcoin traders are weighing the risk of a Democratic sweep in Tuesday's midterm elections against signs that the cryptocurrency could be setting up for a rebound, with billions of dollars in short positions and a wave of withdrawals from exchanges drawing attention.
Chris Sullivan, founder and CEO of Hyperion Decimus, had flagged roughly 29,220 bitcoin-equivalent short positions on CME, worth about $2.2 billion, along with $21.99 billion in short-side taker volume over a 24-hour period.
That positioning raised the prospect of a short squeeze, where rising prices force traders betting against bitcoin to buy back their positions, adding to the rally.
But the recent Binance hack has made those figures harder to interpret.
Sullivan said large amounts of bitcoin have since been withdrawn from exchanges and moved into cold storage, where investors hold their assets outside trading platforms.
"So much BTC was pulled off exchanges and into cold storage self-custody," Sullivan said. "This is very bullish but not immediately."
With fewer coins sitting on exchanges, there may be less bitcoin available for sale if demand returns. Sullivan expects the withdrawals, combined with the earlier short positioning, to be supportive of prices over the next several months.
He is also seeing other signs that the recent selloff may be running its course.
The Crypto Fear and Greed Index and measures of seller exhaustion are showing patterns similar to those seen during the first pullback of a new bitcoin bull market, Sullivan said.
"What we need for confirmation is the 200-day moving average to hold on any additional weakness short term," he said.
Updated futures positioning data is expected Tuesday and should provide a clearer picture of how traders are positioned following the exchange withdrawals. The election, meanwhile, could bring another round of volatility.
Prediction markets Polymarket and Kalshi have put the possibility of Democrats taking control of both chambers of Congress in focus. Such an outcome would likely stall the Clarity Act and other crypto legislation.
Mark Connors, chief investment officer at Risk Dimensions, thinks investors are spending too much time trying to trade the election outcome.
"All eyes are on Polymarket, Kalshi and early exit polls," Connors said. "That is time misspent in our opinion, especially for a year-end play."
Even if Democrats win both chambers, Connors argues that crypto adoption has sufficient backing from regulators and large financial firms to continue advancing.
He pointed to investments in round-the-clock trading by Intercontinental Exchange (ICE) and Robinhood HOOD$85,06, as well as banks' efforts to build stablecoin payment systems.
