Key takeaways:
BTC derivatives pricing suggests limited confidence in surpassing $100,000, influenced by macroeconomic uncertainties and Bitcoin’s poor performance against gold.
Even with enhanced liquidity from Federal Reserve measures, whale investors remain hesitant, indicating doubts about a lasting Bitcoin surge.
Bitcoin (BTC) derivatives markets exhibit growing skepticism regarding the cryptocurrency’s ability to maintain bullish momentum, despite the US Federal Reserve’s shift towards an expansionary monetary policy. Traders are cautious due to risk aversion amid ambiguous economic conditions and Bitcoin’s ongoing underperformance in comparison to gold.
The Fed’s anticipated decision on Wednesday to maintain interest rates at 3.75% received widespread approval, with Fed Chair Jerome Powell adopting a cautious tone during the press conference after the committee meeting. He emphasized persistent risks related to labor market fragility and stubborn inflation. Yet, two Fed members voted to keep rates at 4%, representing a significant divergence for a committee known for strong internal consensus.
A pivotal moment arose with the Fed’s announcement to commence purchasing short-dated government bonds to “help manage liquidity levels.” The initial program of $40 billion authorized on Wednesday signifies a noteworthy departure from the last few years, which saw a continuous reduction of the Fed’s balance sheet, reaching a current $6.6 trillion from a peak of $9 trillion in 2022.
This influx of liquidity enhances the cash banks can lend, promoting credit growth, encouraging business investment, and facilitating consumer borrowing amid a slowdown in economic momentum.
Bitcoin options imply 70% odds BTC staying under $100,000
The $100,000 BTC call (buy) option suggests a 70% likelihood that Bitcoin will remain at or below $100,000 by January 30, as per the Black & Scholes model.
To obtain the right to buy Bitcoin at a set price of $100,000 on January 30, buyers must pay a $3,440 premium upfront. In comparison, this call option was priced at $12,700 just a month ago. The option acts essentially as insurance and expires worthless if Bitcoin closes below the strike price; however, the potential upside remains unlimited as long as the market moves decisively above $100,000.
Notably, Bitcoin’s monthly options expiration in January occurs two days after the upcoming FOMC meeting on January 28. According to the CME Group FedWatch Tool, traders assign a 24% chance to another interest rate cut in January. The uncertainty has increased following the government funding shutdown in November, which limited insight into US employment and inflation data.
The stock market directly benefits from the Federal Reserve’s expansionist approach, as companies look forward to lower capital costs and easier consumer credit. In contrast, Bitcoin’s reaction tends to be less predictable, as investors moving from safe short-term government bonds may not view the cryptocurrency as a dependable store of value.
Yields on the US five-year Treasury were at 3.72% on Wednesday, down from 4.1% six months prior, while the S&P 500 increased by 13% in the same period. Traders are concerned that the rise in US government debt may weaken the dollar and intensify inflationary pressure, making the relative scarcity of equities more appealing despite worries about inflated valuations.
What might trigger a Bitcoin rally remains unclear, but the escalating costs of default protection in the artificial intelligence sector could lead traders to lessen their stock exposure.
Currently, Bitcoin whales and market makers are highly doubtful of a sustained rise above $100,000, despite the Fed’s policy changes creating favorable conditions.
Related: Conflicted Fed cuts rates but Bitcoin’s ‘fragile range’ pins BTC under $100K
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