$100K Bitcoin Value Relies on Fed Policy Shift and AI Debt Crisis

Key insights:

• The Federal Reserve’s transition from quantitative tightening and its rate cuts increase liquidity, rendering fixed-income investments less appealing.

• Rising credit risks in tech, highlighted by soaring Oracle debt protection costs, lead investors to search for alternative and limited assets like Bitcoin.

Bitcoin (BTC) experienced a 4% drop on Friday, reaching a low of $88,140, which extends its decline to 19% since November. In contrast, the S&P 500 is now within 1% of its record high. This pronounced divergence could soon correct with a significant price increase for Bitcoin, driven by a significant shift in central bank policy and escalating credit stress.

This critical situation could drive Bitcoin to the psychologically significant $100,000 threshold before the end of the year.

Declining appeal of fixed income and tech credit concerns could spark Bitcoin surge

A pivotal factor is the Federal Reserve’s shift away from quantitative tightening, a strategy aimed at reducing liquidity in the financial system by allowing Treasury and mortgage-backed security maturities without reinvesting the proceeds. The Fed officially ceased this program on December 1.

In the past six months, the Fed’s balance sheet has decreased by $136 billion, removing a considerable amount of cash from circulation. The market is keenly anticipating what comes next based on expected lower interest rates. According to the CME FedWatch Tool, bond futures suggest an 87% likelihood of a rate cut at the upcoming Fed meeting, with expectations fully factoring in three cuts by September 2026.

Decreasing interest rates and a rise in systemic liquidity fundamentally lower the demand for fixed-income assets. As the Fed lowers rates, the yields on new bond issues decline, diminishing their attractiveness to institutional investors. According to Bloomberg, US money-market funds have reached a record high of $8 trillion.

The potential shift in capital is further supported by emerging structural risks in equity markets, particularly within the tech sector. The cost of protecting Oracle’s (ORCL) debt against default through Credit Default Swaps has soared to the highest level since 2009. As of the end of August, Oracle had $105 billion in debt, inclusive of leases.

Related: US investors perceive crypto as less risky as risk appetite wanes–FINRA study

Oracle anticipates generating hundreds of billions in revenue from OpenAI, as reported by Bloomberg. The company stands as the largest debt issuer outside the banking sector in the Bloomberg US Corporate Bond Index. “Investors are increasingly worried about potential future supply increases,” stated a Citigroup credit strategy report.

Bank of America indicates steady Fed rates elevate economic slowdown risks

Investor apprehensions grow around this high-stakes initiative, which includes US President Donald Trump’s Genesis Mission—aimed at doubling US scientific output through AI and nuclear energy. The surge in demand for debt protection is indicative of profound market anxiety regarding substantial debt-driven expenditures, which may not provide sufficient returns.

Bank of America strategist Michael Hartnett asserted that if the Fed conveys the message of maintaining steady interest rates, the likelihood of a broader economic slowdown increases significantly. This uncertainty, coupled with a desire for growth less reliant on stimulus, enhances Bitcoin’s appeal due to its scarcity as institutional capital seeks to mitigate risk in traditional tech exposures.

The Fed’s formal cessation of its liquidity drainage program and market expectations for interest rate cuts create a considerable tailwind. As tech credit risks rise due to substantial AI-related debt, capital is structurally inclined to move towards scarce assets. This convergence paves a clear trajectory for BTC to surpass the $100,000 threshold in the coming months.

This article is for informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.