Bitcoin Surges 3.2%, Prompted by Balanced Options Expiry and Favorable U.S. Economic Conditions
Summary:
Bitcoin's price jumps 3.2% on January 26 after struggling for three days to surpass a $40,000 resistance. This comes after the expiration of $4.5 billion worth of monthly BTC options. The price surge is also attributed to the reduction of inflationary pressures in the U.S., which are impacting the country's macroeconomic health. Further aiding the increase is the decreased transaction cost on the Bitcoin network and the stabilization of outflows from the Grayscale GBTC Bitcoin ETF, which led to a net inflow of $744 million over the past 10 days.
On January 26, Bitcoin (BTC) experienced a 3.2% price surge after a three-day battle to scale the $40,000 resistance threshold. This sudden upswing followed shortly after the expiration of $4.5 billion worth of monthly BTC options. This situation was advantageous to the holders of put (sell) options if the price was below $40,000 at expiration. Hence, the recent BTC recovery can be attributed to a balanced outcome between the call (buy) and put options in the January 26 expiry.
Bitcoin's price spike was aided by a decrease in inflationary pressures in the U.S. The country's economic health appeared to improve after the U.S. Commerce Department reported a 2.9% annual increase in the personal consumption expenditures (PCE) price index in December 2023, not taking into consideration food and energy cost fluctuations. U.S. Federal Reserve (Fed) utilizes such inflation data to determine interest rates. Recently released metrics hint at the Fed's probable strategy to regulate inflation without catalyzing a recession, as the U.S. GDP witnessed a 3.3% growth in the fourth quarter of 2023.
Andrew Hunter, the Deputy Chief U.S. Economist at Capital Economics, suggests that Fed officials should soon reconsider the restrictive monetary policies. He believes the magnitude of the U.S. federal debt interest payment alone suffices to bolster Bitcoin's price viability. This sentiment is echoed by the Heritage Foundation economist, E.J. Antoni, who indicates that government interest expenses will surpass $1.7 trillion, adjusted for inflation, by 2027.
E.J. Antoni deems the situation "insane and unsustainable," signifying that the U.S. dollar will continue to depreciate. The government will either need to infuse liquidity to appease its debts or drastically slash interest rates, thereby causing inflationary pressures. The onus lies on the best-performing sector or asset as the Fed will be compelled to reduce interest rates at some point. Generally, the stock market benefits abundantly from this move as the cost of capital for public companies drops while making fixed-income investments less appealing.
Bitcoin recently attracted positive attention from the traditional financial sector. A JP Morgan report suggested that the outflows from the Grayscale GBTC Bitcoin ETF have reached their peak, pointing towards a lessening downward pressure on Bitcoin from that source. Based on Bloomberg ETF analyst James Seyffart's observation, the U.S. spot Bitcoin ETFs experienced a net outflow of $80 million on January 25. Nonetheless, the data demonstrated a promising 10-day net total inflow of $744 million. Therefore, even if the Grayscale GBTC outflow persists, contenders like BlackRock, Fidelity, Ark 21 Shares, and Bitwise could potentially stabilize the circumstances.
Furthermore, Bitcoin investors are optimistic thanks to lower transaction costs on the network over the last 10 days. Transactions exceeding 30 sat/vB—approximately $1.90—were previously halted in the 'mempool' due to overwhelming demand. It's notable that time-sensitive transactions had to pay $2.50 or higher till January 23 owing to network congestion. Bitcoin's recent rally above $42,000 appears to be a result of these events, improved macroeconomic conditions, and decreased risks from Grayscale GBTC outflows.
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Published At
1/27/2024 12:19:10 AM
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