Starting from March 25, Bitcoin (BTC) has found it challenging to stay above the $71,000 price point. This persistent inability to hold value could be interpreted as a bearish signal for some observers. However, an analysis of Bitcoin’s derivatives market suggests a more stable situation. The intense optimism that previously dominated this market has noticeably lessened.
Resilient U.S. inflation strengthens the bull case for Bitcoin
At present, Bitcoin has a hard time staying above the $70,000 mark. However, some financial experts argue that the latest U.S. inflation reports, which have surprising strength, and the unsustainable spending habits of the U.S. government make it a favorable climate for purchasing rare assets like Bitcoin.
Market analyst MatticusBTC explains that the recent increase in inflation is largely due to the large amount of money the U.S. Federal Reserve printed and released into the economy between 2020 and 2021. This means the Fed might need to keep interest rates high for some time. However, this approach comes with challenges, including the significant cost of servicing the U.S. government’s debt through higher interest payments.
Businesses and individuals may encounter challenges when higher interest rates force them to refinance or apply for new loans. This predicament can also dampen investor enthusiasm for riskier assets due to slowed economic expansion. However, in the year 2024, investors sought out various options to invest their funds outside of U.S. Treasury bonds.
Over the past month, gold and Bitcoin have reached new record highs, while U.S. government 2-year notes hit a nine-month low on April 9th. This trend implies that investors are less interested in the 4.7% fixed return on US Treasuries as a safeguard against inflation.
The stock market might dictate Bitcoin’s performance in the near term
Critics of Bitcoin argue that the recent decline of the S&P 500 index from its peak of 5,265 on March 28 could indicate an approaching economic recession. Since Bitcoin and the stock market have shown a significant correlation of over 80% in the last month, it’s possible that Bitcoin’s value may decrease at first if stock market instability persists.
Although encountering obstacles at the $72,000 mark, the Bitcoin futures and options markets exhibit a sense of balance currently. This equilibrium is reinforced by two significant signs, suggesting a more robust appetite for taking on greater financial risk than earlier in March. However, it’s essential to acknowledge the potential risks associated with substantial leverage, given the current open interest in Bitcoin futures standing at $34.3 billion.
In simpler terms, perpetual contracts or inverse swaps have a rate that gets adjusted every eight hours. An upward funding rate indicates higher demand for buyers in the market.
The data shows a significant spike in funding rate, which reached 0.07% every eight hours on March 31. This translates to an annualized rate of approximately 1.5% per week. However, this rate has since dropped to 0.3% per week currently. This decrease in pressure for traders holding long positions using leverage suggests a more balanced market situation and could potentially set the stage for bullish trends.
To check if the reduced interest in taking on leveraged long positions truly represents the market’s feelings, examine the ratio of call (buy) to put (sell) option purchases. A surge in put options indicates that investors are more likely anticipating a flat or negative market trend.
Over the past few weeks, there’s been a noticeable difference in the trading volumes between put and call options for Bitcoin. Put options have trailed behind call options by approximately 35%. This disparity suggests that investors are less interested in safeguarding against potential price drops. It’s intriguing to observe this trend given Bitcoin‘s repeated attempts to hold above the $64,500 support level during early April.
The possibility of Bitcoin reaching new record highs soon is uncertain, but the danger of a large-scale sell-off due to excessive borrowing seems to have decreased. Therefore, unless there’s a significant downturn in the economy as a whole, it’s unlikely that Bitcoin will drop below $65,000.
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2024-04-11 23:35