Bitcoin Soars Past $45,000 Amid Inflation Fears and Rising U.S. Debt
Summary:
Bitcoin has crossed the $45,000 mark for the first time since January 12, a surge coinciding with the S&P 500 reaching a record high. This rally, often a signal of investors seeking inflation protection, may forecast further bullish growth. The current U.S. debt stands at a historic high of $34.2 trillion, a situation which encourages the Federal Reserve to reduce interest rates, pushing investors towards stocks and commodities. As derivates data reveals no excessive optimism, Bitcoin could potentially stay above the $45,000 support level.
On February 8, Bitcoin (BTC) managed to climb past $45,000, a price not seen since January 12, after it gained 6% in just a couple of days. This upward movement happened concurrently with the S&P 500 hitting an all-time high on February 7, suggesting that investors are looking for a hedge against inflation. Furthermore, data on Bitcoin derivatives suggest there's additional room for bullish growth.
Right now, the U.S. government debt has hit a record-breaking $34.2 trillion, a circumstance that worries both economists and analysts. While many argue that the absolute number is less critical than the interest paid, Jerome Powell, the U.S. Federal Reserve (Fed) Chairman, conceded in a February 4 interview that this is an "unsustainable fiscal path".
Observing this backdrop, the U.S. Fed could find itself motivated to reduce interest rates from the current 5.25% by 2024, a prediction that aligns with market expectations. As the returns from fixed-income investments drop, investors typically seek safety in stocks and commodities.
The Congressional Budget Office predicts that due to debt-servicing fees, the U.S. budget deficit may skyrocket by approximately 66% within a decade. Moreover, the Congressional fiscal watchdog has forecasted that the nation's total public debt could exceed 100% of the GDP by 2025. This trend puts pressure on the U.S. dollar as the global reserve currency and demand for U.S. Treasurys.
On top of significant national debt, U.S. consumer debt delinquency rates have risen to their highest in more than a decade. New York Fed’s data on February 6 reported that consumer credit card debt balances have hit an 8.5% annualized default rate in the closing months of 2023, with auto loans following suit at 7.7%, as reported by Axios. This rise in debt could spell trouble for both the banking sector and the broader economy.
In such an uncertain economic environment, Bitcoin emerges as an attractive investment. It’s a limited-run resource and this is likely a factor in its recent rise to $45,000. However, this increase does not necessarily mean that BTC can ride out the increase and investors should be cautious, looking at how major players and arbitrage offices are faring in order to determine if the increase was driven by leverage.
BTC futures premium data shows it reached its peak in three weeks on February 8, passing the 10% threshold indicative of bullish markets. This increase has not given way to over-optimistic attitudes, supporting the hope that Bitcoin can hold onto its $45,000 support level.
For a more comprehensive analysis, Bitcoin option markets should be looked at. The 25% delta skew can be used to determine if traders are becoming more optimistic. A rise in the skew above 7% would mean a drop in Bitcoin’s price is anticipated, whereas a -7% metric means there is optimism.
On February 8, when Bitcoin's price passed $45,000, the BTC options 25% skew moved into the -7% bullish zone for the first time in two months. Just like the BTC futures metric, the current level is close to the neutral range, a sign of moderate optimism. This is an extremely positive situation, considering that some analysts are fearful that the deteriorating macroeconomic conditions could potentially impact Bitcoin’s price negatively.
The price movement of Bitcoin following the approval of spot Bitcoin exchange-traded funds (ETF) on January 10, could explain the cautious optimism from bulls. The surge that saw Bitcoin topping $49,000 led to $150 million long futures contracts being forcefully liquidated in two days and was swiftly followed by a 15.3% drop to $41,500 within two days. As such, the current Bitcoin derivatives metrics line up with the present market conditions, suggesting more bullish momentum and a potential rise to $49,000.
Investment and trading have their risks and readers should do their own due diligence before making any investment or trading decisions.
Published At
2/8/2024 11:15:00 PM
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