The Regime Change Portfolio: Decoding High-Stakes Bets on Trump, the Fed, and Crypto

Key Takeaways

• Kalshi traders assign a significant 50% probability to Trump leaving office early, an elevated risk premium with profound policy implications.
• Crypto markets show extreme bullish skew, with only 1-2% chance for >$150k Bitcoin, but a notable 20% chance of a dip to ~$80k, suggesting expectation of volatility and potential correction.
• Fed cut expectations are overwhelmingly priced (98% for 75bps), yet Powell's potential departure (1% probability) remains a critical low-probability, high-impact tail risk.
• Market volumes indicate trader focus is split between high-stakes political uncertainty and highly-specific monetary policy/crypto price outcomes.
• The primary catalysts cluster around the election (Nov), Fed meetings, and crypto regulatory developments; risks are asymmetric across these domains.

Executive Summary

The prediction market landscape, as captured by high-volume contracts on Kalshi, presents a tightly interwoven narrative of political risk, monetary policy certainty, and digital asset speculation. The Elections Desk's purview is expanding: the 2024 presidential contest is no longer an isolated event but the central node in a network of consequential outcomes. This research note synthesizes data from ten key markets, collectively representing over $69M in traded volume, to distill actionable insights. The core finding is a market bracing for potential regime change—both political and financial—with probabilities assigned to outcomes ranging from the probable (Fed cuts) to the extreme (Bitcoin at $150k) to the once-unthinkable (a sitting president leaving office early).

I. The 50% Question: Decoding the Trump Exit Probability

The standout signal is the 50% implied probability that Donald Trump leaves office before January 1, 2026. For context, similar markets for President Biden exiting early in 2023 rarely breached 15% outside of acute news cycles. This elevated level is not a prediction of a specific event but a composite risk premium reflecting multiple severe tail risks. It is crucial to interpret this not as a 50% chance of, for example, a medical event, but as a market assigning significant weight to the cumulative probability of all possible early-exit scenarios.

Historical & Structural Context: Modern presidents rarely leave office early. The last to do so was Richard Nixon in 1974. The 25th Amendment has never been used to permanently remove a president. Therefore, a 50% market price is historically anomalous and demands attention.

Decomposition of Risk: The probability likely aggregates:

1. Post-Election Transition: A Trump loss in November could lead to calls for an accelerated transition, especially if the result is contested. A 'lame duck' period is standard, but market resolution is by year-end.
2. Health: Age is a non-partisan risk factor.
3. Political/Constitutional Crisis: A contested election, mass unrest, or legislative action could create unprecedented pressure.
4. Voluntary Resignation: Deemed highly unlikely but non-zero.

Trading Implications: At 50%, this is an efficient market reflecting deep uncertainty. A long 'No' position serves as a hedge against political stability; a victory or clear polling lead for Trump would likely depress this probability, offering an exit. A long 'Yes' position is a pure volatility/chaos hedge. Post-election, this market will experience binary volatility: a Trump win likely crushes the probability to <10%; a loss could spike it to >80% as traders price a January 2025 exit.

II. Crypto Contradiction: Priced for a Correction, Dreaming of a Moon

The crypto markets here exhibit a fascinating structure: extreme upside is given low odds, while a near-term dip is considered plausible.

Upside Skew Analysis: The probabilities decay rapidly with higher price targets:

• > $100k by Dec 31, 2025: 11%
• > $130k in 2024: 1%
• > $140k in 2024: 2%
• > $150k in 2024: 1% This suggests the market views a run to $100k-$120k as the realistic bullish case, with exponentially diminishing chances beyond. The concentration of volume across these contracts ($9.7M, $5.0M, $4.6M) shows intense interest in defining the upper bound.

Downside Protection Signal: The 20% probability assigned to Bitcoin falling to $80,000.01 or above (note: this 'low' contract resolves Yes if the price stays above $80k) is arguably more significant. This implies a 1-in-5 chance Bitcoin touches the $80k level this year. Given current prices (assumed ~$70k-75k for this analysis), this represents a ~7-14% drawdown from prevailing levels. This is a sobering counterpoint to the euphoric headlines, pricing in a significant correction as a non-trivial risk.

Ethereum's Asymmetric Call: The 2% chance for Ethereum at $5,000+ (from ~$3,800) implies a ~31% upside needed. Compared to Bitcoin's $150k target (~100%+ upside from $75k), Ethereum's target is relatively more conservative in percentage terms, but still a low-probability outcome. This may reflect market belief that Ethereum's ETF-driven rally has more immediate hurdles or that it will underperform Bitcoin in a blow-off top scenario.

Catalysts & Risks:

• Bullish: Spot Ethereum ETF inflows, softer regulatory stance under a potential Trump administration, sustained institutional adoption.
• Bearish: Regulatory crackdowns (especially under a Democratic administration), crypto-specific Black Swan event (e.g., major exchange failure), or a broad risk-off move triggered by a political crisis or Fed policy mistake.
• Trading Insight: The spread between the high-probability dip (~20% at $80k) and low-probability surge (1-2% at $150k) suggests selling upside calls and buying downside puts (or their prediction market equivalents) could be a viable volatility harvesting strategy. The market is paying more for tail-risk protection on the downside than for lottery tickets on the extreme upside.

III. Monetary Policy: A Consensus with a Hidden Tail Risk

The Federal Reserve outlook is presented with near-total certainty, creating a potential 'crowded trade' risk.

The Dovish Consensus: A 98% probability for three 25-bp cuts (75 bps total) in 2024 is about as close to certainty as prediction markets get. This aligns with the median Fed dot plot from June but is more aggressive than some recent hawkish FOMC commentary. The market is effectively dismissing the possibility of a pause after one or two cuts, or a re-acceleration of inflation forcing a hold.

The Powell Paradox: The 1% probability of Chair Powell leaving before 2026 is the sleeper risk. While low, the $6.4M volume indicates it is not being ignored. A Powell departure could be bullish or hawkish depending on the successor (e.g., a more political dove vs. a inflation-fighting hawk). In a Trump administration, a replacement would be almost certain, potentially upending the current Fed consensus. This is the textbook definition of a convexity play: a small premium protects against a high-impact event.

Historical Parallels: In 2018, Trump publicly criticized Powell and reportedly considered replacing him. Markets wobbled on the news. The precedent exists for political pressure, though actual removal remains unlikely.

Trading Implications:

• The rate cut markets offer little edge given near-100% probabilities. They are useful as hedging instruments for other fixed-income exposures.
• The 'Powell leaves' contract at 1% is intriguing for tail-risk portfolios. A political shock post-election could see this probability spike to 20-30% quickly, offering a 20x+ return on a small capital allocation. It acts as a cheap hedge against central bank independence being compromised.

IV. Synthesizing the Narrative: The Interconnected Web

These markets do not exist in isolation. Key interconnections include:

1. Trump Exit x Crypto: A Trump exit (Yes) would initially likely crash crypto prices due to a broad risk-off shock. However, if the exit resulted from an election loss, a Harris administration would be viewed as moderately to severely negative for crypto regulation, potentially sustaining downward pressure. A Trump exit via other means in a second term could create policy chaos, also negative for risk assets.
2. Trump Exit x Fed Policy: An early Trump exit would throw the Fed into an acute political crisis. It would likely hold steady on policy in the short term but could accelerate cuts if a political crisis precipitated a market crash or recession.
3. Fed Cuts x Crypto: The 75 bps of expected cuts are a key pillar supporting the bullish crypto thesis (liquidity, weaker dollar). If the '3 cuts' probability falls, it would likely directly pressure Bitcoin and Ethereum prices. The crypto 'low' market (20% prob) is likely pricing in a scenario where the Fed delivers only 1-2 cuts.
4. Election x All Markets: November 5, 2024, is the single greatest catalyst. Its outcome will immediately recalibrate the Trump exit probability, influence the regulatory outlook for crypto (Trump=positive, Harris=negative), and shape the political pressure on the Fed.

V. Actionable Trading Strategies

For Risk-Off / Macro Hedgers:

• Primary Hedge: Consider a long position in 'Trump Out Yes' as a direct hedge against political instability. Allocate small capital given 50% price.
• Tail-Risk Hedge: Allocate minimal capital to 'Powell Leaves Yes' at 1% as a hedge against central bank policy disruption.
• Portfolio Protection: Use the 'Bitcoin below $80k' market (or its inverse) to hedge a crypto-inclusive portfolio against a ~15% drawdown.

For Directional Speculators:

• Political: Short 'Trump Out' if you have high conviction in his political durability and health. The 50% probability offers attractive odds for a 'No' bet if you believe the risk is overstated.
• Crypto: Avoid the extreme upside calls (>$140k) – they are expensive lottery tickets. Instead, consider structuring a bet around the $100k by year-end (11%) vs. dipping to $80k (20%) spread, as these reflect the market's core expected range.
• Rates: The '3 Cuts' market is overbought. Look for opportunities to short this contract on hawkish Fed rhetoric or hot inflation prints, expecting probability to fall from 98% toward 80-90%. This is a high-probability, low-payout trade but can be sized accordingly.

For Arbitrage & Relative Value:

• Examine the consistency between Bitcoin price contracts. Does the probability curve from $100k to $150k make logical sense? Small mispricings can be exploited.
• Monitor the divergence between Fed funds futures and these prediction markets for policy outcomes.

Conclusion: A Market Bracing for Regime Change

The Kalshi markets paint a picture of a financial ecosystem on edge, simultaneously confident in a dovish Fed but deeply uncertain about the political foundations upon which that policy sits. The 50% probability of a Trump early exit is the shocking figure that dominates the landscape, suggesting traders are pricing in a year of unprecedented political volatility. Meanwhile, crypto markets balance greed with a palpable fear of a sharp correction.

The key insight for institutional participants is that political risk is no longer a subordinate asset class. It is now a core, liquid component of the macro toolkit, directly priced against monetary policy and digital asset expectations. The months ahead will see these probabilities whipsawed by headlines, polls, and economic data. The most significant moves will likely occur not from a single data point, but from the cascading effects across this interconnected web—where a shift in the political probability forces a recalibration of the crypto and Fed outlooks, and vice-versa. Vigilance and cross-market analysis are paramount.

Market Analysis

Donald Trump out this year? ➡️

Current Probability: 50.0%

The 'Donald Trump out this year?' market is the single most significant signal in the dataset, with its 50% probability and highest trading volume ($9.8M). This is an extraordinary implied probability for an event involving an incumbent President. Historically, betting on the early departure of a sitting president has been a low-probability, high-payout market (e.g., Biden leaving before 2024). The current 50% level suggests traders are pricing in a substantial risk premium for one or more of the following: medical event, resignation, removal via the 25th Amendment, or even assassination. The election is a key catalyst; a Trump loss could increase pressure for an early transition, while a win might see the probability plummet. This market's high volume and even-money odds make it a focal point for hedging or speculating on extreme political volatility.

How high will Bitcoin get this year? ($150,000+) ➡️

Current Probability: 1.0%

Crypto markets are flush with high-volume, low-probability bets on extreme upside. The suite of 'How high will Bitcoin get this year?' markets shows probabilities of 1-2% for targets from $130k to $150k. In stark contrast, the 11% probability for Bitcoin above $100k by year-end and the 20% probability for Bitcoin dipping to ~$80k are more telling. This structure reveals a consensus bullish base case (likely between $100k-$130k), but with a significant (~1 in 5) chance of a meaningful correction. The ~$10k spread between the 'low' ($80k) and the 'high' targets suggests expected volatility remains high. The $5,000+ target for Ethereum at 2% probability indicates similar, though slightly more conservative, upside optimism for the second-largest crypto asset.

Will the Fed cut rates 3 times? (75 bps) ➡️

Current Probability: 98.0%

Monetary policy expectations are nearly monolithic. The 98% probability for three Fed rate cuts (75 bps) and the minimal 6% probability for only two cuts signal overwhelming conviction in a sustained dovish pivot. This consensus is so strong that it leaves little room for standard policy surprises. However, this makes the 'Powell leaves before 2026?' market critically important. At a mere 1% probability, it is a classic 'black swan' or tail risk market. If Powell were to resign or be replaced in a new administration, the entire rate path could be re-evaluated, creating massive dislocation in interest rate-sensitive assets. The low probability is justified by historical norms, but the high volume ($6.4M) indicates sophisticated traders are willing to pay a premium to hedge this scenario.