The new year started on a happy note, with Bitcoin (BTC) approaching $100,000, leaving December’s weak price behind. Amid the applause, CoinDesk warned against being too optimistic, pointing out the undercurrents of sellers looking to assert themselves.
A week later, BTC has retreated to $93,000 after failing to sustain gains above $100,000 on Monday, CoinDesk data shows.
The latest slowdown comes at a time of increased volatility in the US Treasury market, where long-term yields have extended the fourth-quarter 2024 rally to multi-month highs on economic data pointing to persistent inflation in the US
It’s not just nominal bond yields, but real or inflation-adjusted yields are also rising. The yield on the 10-year inflation-indexed US security has risen to 2.29%, the highest since November 2023, according to charting platform TradingView.
When the yield offered by fixed income products begins to look more attractive in real terms, the incentive to invest in risky assets decreases. This is particularly true when the yield rally is driven by hawkish expectations from the Federal Reserve rather than economic growth.
That is precisely the case this week. With data pointing to persistent inflation, traders have pushed back the timing of the Fed’s next rate cut to June.
“This morning’s drop in the spot price of bitcoin appears to be a response to higher yields in the Treasury market and the lower likelihood of further rate cuts this year. This has impacted the near-term market outlook for crypto assets , which tend to perform better. in more liquid conditions,” Thomas Erdosi, head of product at CF Benchmarks, told CoinDesk.
Note that rising yields are not just a US-centric issue. Yields are soaring in major economies and Japan and the UK are joining the fray. The UK is experiencing its highest long-term returns since 1998.
All of this is impacting stocks, similar to what is happening with BTC. Major indices like the Nasdaq and S&P 500 have also lost their New Year’s gains.
But here’s a twist: despite the macroeconomic uncertainties, the BTC options market listed on Deribit remains bullish, with the dollar value of active calls totaling $14.87 billion at the time of this publication, almost double the value of active puts, according to data source Amberdata.
A call buyer is implicitly bullish on the market, while a put buyer is bearish.
Additionally, the $120,000 strike call option remains the most popular, with theoretical open interest of $1.47 billion. The $101,000 and $110,000 strike call options also have open interest of more than $1 billion each. Meanwhile, the most popular put at $75,000 has open interest of $595 million.
In general, call options expiring after January continue to trade at a notable premium to puts, reflecting a bullish bias.
“We could see a change in market fortunes later this month. President Trump’s inauguration on January 20, which heralds a greater likelihood of a much more favorable regulatory environment for cryptocurrencies, could be a key factor in cryptocurrency market sentiment,” Erdosi added.
