Main Insights:
Liquidations of Bitcoin bearish positions exceeded $313 million, indicating potential for a short squeeze.
The momentum in gold reflects investors seeking alternatives as expectations for interest rate cuts grow.
On Thursday, Bitcoin (BTC) approached the $121,000 mark, reaching its highest point in seven weeks. Market bulls express confidence, claiming that current conditions surpass those in mid-August when BTC briefly hit $124,000.
Alongside diminishing recession fears and gold’s beneficial momentum, Bitcoin derivatives imply that traders may have been unprepared, a situation that frequently results in a short squeeze.
In contrast, gold had been stagnant near $3,400 for almost two months before mid-August, when Bitcoin rallied to its peak. At that time, global trade tensions were escalating as the temporary 90-day reduction of China import tariffs by the United States lapsed on August 12, spurring expectations of potential inflationary pressures.
Favorable Gold Returns and Reduced Inflation Risks Support Bitcoin Growth
The latest US Personal Consumption Expenditures Price Index, released Friday, indicated a 2.9% rise from August, aligning with analyst predictions. With inflation no longer seen as an urgent issue, traders felt reassured that the US Federal Reserve (Fed) would continue its path toward further interest rate reductions.
Traders who purchased Bitcoin above $120,000 in August experienced disappointment, as import tariffs did not negatively impact the US trade balance or retail sales in the short term. Nevertheless, Bitcoin’s ascent in October has paralleled a 16% increase in gold prices over six weeks, as World Gold Council data indicates ongoing accumulation by central banks.
Based on the CME FedWatch tool, the implied likelihood of the US Federal Reserve reducing rates to 3.50% or lower by January 2024 is currently at 40%, an increase from 18% in mid-August. While investors may appreciate the current path of inflation, persistent labor market weaknesses could hinder the recent all-time highs of the S&P 500, particularly amidst uncertainty related to a potential US government shutdown.
On Monday, Federal Reserve Vice Chair Philip Jefferson raised concerns regarding the labor market, suggesting it “could face stress” without proper support. Jefferson linked this pressure to US President Donald Trump’s policies concerning trade, immigration, and others, as reported by Reuters. He noted that these effects “will become more evident in the coming months,” leading traders to seek alternative hedging instruments.
Bitcoin Derivatives and Diminished AI Sector Concerns Lessen Sell Pressure
In the three days leading up to Bitcoin’s peak in mid-August, traders were placing nearly equal bets on upward and downward price movements, according to derivatives data. Presently, however, the same BTC options gauge indicates a moderate apprehension of correction, with put (sell) options trading at a premium to call (buy) options.
Between Wednesday and Thursday, more than $313 million in leveraged short (sell) Bitcoin futures were liquidated, according to CoinGlass data. This further corroborates that the rise above $120,000 surprised markets, minimizing the chances of significant profit-taking in futures markets if bullish momentum continues.
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Additionally, another factor mitigating short-term risks was OpenAI’s successful share sale at a record $500 billion valuation. The artificial intelligence sector faced heightened scrutiny leading up to this point due to US export restrictions on advanced AI chips to China and Meta’s decision to halt hiring in its AI division.
As investors gain increased confidence in forthcoming interest rate cuts in the US and perceive a diminished risk of a stock market correction, Bitcoin’s trajectory toward $125,000 and beyond appears increasingly likely. Meanwhile, gold’s consistent momentum underscores traders’ growing preference for alternatives to conventional bond and equity markets.
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.
