The new year started on a happy note with bitcoin (BTC) moving towards $100,000, putting December’s price weakness behind it. in the midst of fun, CoinDesk warns against being too optimistic, note the undercurrents of sellers looking to reassert themselves.
A week later, BTC is back at $93,000 after failing to hold gains above $100,000 on Monday, CoinDesk data shows.
The latest downturn comes amid heightened volatility in the US Treasury market, with long-term yields extending their Q4 2024 rally to hit multi-month highs on economic data pointing to firmer US inflation.
It’s not just nominal bond yields, real or inflation-adjusted yields are creeping up as well. The yield on the 10-year US inflation-indexed security jumped to 2.29%, the highest since November 2023, according to charting platform TradingView.
When the yield offered by fixed-income products starts to look more attractive in real terms, the incentive to invest in risky assets diminishes. This is particularly true when the rise in yields is driven by the Fed’s hawkish expectations rather than economic growth.
That was certainly the case this week. With data pointing to sticky inflation, traders pushed the timing of the Fed’s next rate cut to June.
“This morning’s slide in the price of bitcoin appears to be in response to higher yields in the Treasury market and the reduced likelihood of further rate cuts this year. This has affected the short-term market outlook for the assets of crypto, which tends to fare better in more liquid conditions,” Thomas Erdosi, head of product at CF Benchmarks, told CoinDesk.
Note that the yield spike is not just a US-centric issue. Yields are rising in major economies with Japan and the UK joining the fray. The UK is experiencing its highest long-term yield since 1998.
All this affects stocks, similar to what is happening with BTC. Major indexes like the Nasdaq and the S&P 500 also lost their New Year’s gains.
But here’s a twist: Despite macro uncertainties, BTC’s Deribit-listed options market remains optimistic, with dollar-denominated active calls tallying $14.87 billion at press time, nearly double the value of active placements, according to data source Amberdata.
A call buyer is implicitly bullish on the market while a put buyer is bearish.
Moreover, the $120,000 strike call option remains the most popular, with a notional open interest of $1.47 billion. The calls at strikes of $101,000 and $110,000 also boast open interest of over $1 billion each. Meanwhile, the most popular put option at $75,000 has open interest of $595 million.
In general, calls expiring after January continue to trade at a noticeable premium to puts, showing a bullish bias.
“We may see a potential change in market fortunes by the end of this month. The inauguration of President Trump on January 20, which indicates an increased likelihood of a more favorable regulatory environment for crypto, could be a major driver in crypto market sentiment,” Erdosi added.
