$100K Bitcoin Price Linked to Federal Reserve Policy Shift and AI Debt Crisis

Key takeaways:

• The Federal Reserve’s transition away from quantitative tightening and subsequent rate cuts injects liquidity, diminishing the appeal of fixed-income assets.

• Rising credit risks in the tech sector, as highlighted by soaring Oracle debt protection costs, lead investors to seek alternative and rarer assets like Bitcoin.

Bitcoin (BTC) dropped 4% on Friday, reaching a low of $88,140, marking a total decline of 19% since November. In contrast, the S&P 500 is now less than 1% shy of its all-time peak. This notable divergence may soon align with a significant rebound for Bitcoin, driven by a crucial shift in central bank policy and increasing credit pressures.

This confluence of factors could push Bitcoin towards the psychologically significant $100,000 threshold before the year ends.

waning allure of fixed income and escalating tech credit concerns might ignite Bitcoin surge

The pivotal element is the Federal Reserve’s shift from quantitative tightening, a method of extracting liquidity from the financial system by allowing Treasury and mortgage-backed securities to mature without reinvestment. The Fed officially terminated this initiative on Dec. 1.

In the past six months, the Fed’s balance sheet has shrunk by $136 billion, pulling a substantial amount of cash from the market. Investors are actively anticipating the next stage based on lower interest rates. Per the CME FedWatch Tool data, bond futures indicate an 87% likelihood of a rate cut at the upcoming Dec. 10 Fed meeting, with full expectations for three cuts by September 2026.

Declining interest rates and increasing liquidity inherently reduce the demand for fixed-income assets. As the Fed decreases rates, the yields on new bond offerings will also drop, making them less appealing to institutional investors. According to Bloomberg, US money-market funds have reached a historic high of $8 trillion.

The potential for capital rotation is further pushed by structural risks arising in the equity markets, particularly in the tech sector. The expense of shielding Oracle’s (ORCL US) debt against default via Credit Default Swaps has skyrocketed to its highest point since 2009. As of August’s end, Oracle bore $105 billion of debt, including leases.

Related: US investors view crypto as less appealing as risk appetite wanes–FINRA research

Oracle anticipates revenues in the hundreds of billions from OpenAI, as reported by Bloomberg. The firm is the largest corporate bond issuer outside the banking sector in the Bloomberg US Corporate Bond Index. “Investors are growing increasingly wary of potential additional supply,” states a Citigroup credit strategy report.

Bank of America warns steady Fed rates heighten economic slowdown risks

Investors are anxious about this high-stakes initiative, which includes the US Donald Trump administration’s Genesis Mission, a national project designed to double US scientific output through AI and nuclear energy. The rising need for debt protection reflects extreme market anxiety concerning immense debt-driven spending that may not yield satisfactory returns.

Bank of America strategist Michael Hartnett posited that if the Fed signals maintaining steady interest rates, the probability of a broader economic downturn significantly increases. This unpredictability, combined with a desire for growth less reliant on stimulus, magnifies Bitcoin’s allure due to its scarcity as institutional investors seek to mitigate traditional tech risks.

The Fed’s formal conclusion of its liquidity withdrawal program and the market’s keen pricing of interest rate cuts offer strong support. With tech credit risks rising from substantial AI-related debts, capital is fundamentally prepared to shift toward scarce assets. This alignment paves a clear route for BTC to surpass the $100,000 milestone in the coming months.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.