The new year started on a happy note with bitcoin (BTC) heading towards $100,000, putting behind the weak price in December. Amidst the jubilation, CoinDesk cautioned against being too optimistic, noting the undercurrents of sellers looking to assert themselves.
A week later, BTC has retreated to $93,000 after failing to hold gains above $100,000 on Monday, CoinDesk data shows.
The latest decline comes at a time of heightened volatility in the US Treasury market, with long-term yields extending the rally in Q4 2024 to hit multi-month highs on economic data pointing to stubborn inflation in the US
It’s not just nominal bond yields, real or inflation-adjusted yields are also creeping up. The yield on the 10-year U.S. inflation-linked note rose to 2.29%, the highest since November 2023, according to charting platform TradingView.
When the returns from fixed income products start to look more attractive in real terms, the incentive to invest in risky assets decreases. This is especially true when the rise in interest rates is driven by hawkish Fed expectations rather than economic growth.
That is exactly the case this week. With data pointing to sticky inflation, traders have pushed the timing of the next Fed rate cut to June.
“This morning’s drop in the spot bitcoin price appears to be a response to higher interest rates in the Treasury market and the reduced likelihood of further rate cuts this year. This has affected the short-term market outlook for cryptoassets, which tend to outperform. i more fluid conditions,” Thomas Erdosi, head of product at CF Benchmarks, told CoinDesk.
Note that the dividend hike is not just a US-centric problem. Dividends are rising across the major economies, with Japan and the UK joining the fray. UK sees highest long yield since 1998.
All this affects stocks, similar to what happens with BTC. Major indexes such as the Nasdaq and the S&P 500 have also lost their New Year gains.
But here’s a twist: Despite the macro uncertainties, BTC’s Deribit-listed options market remains upbeat, with the dollar value of active calls equaling $14.87 billion at press time, nearly 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.
Furthermore, the $120,000 strike option remains the most popular with a theoretical open interest of $1.47 billion. Calls to strikes $101,000 and $110,000 also boast open interest of over $1 billion each. Meanwhile, the most popular $75,000 put option has an open interest of $595 million.
Overall, calls expiring after January continue to trade at a notable premium to puts, reflecting a bullish bias.
“We could potentially see a change in market fortunes by the end of this month. The inauguration of President Trump on January 20, heralding an increased likelihood of a much more favorable regulatory environment for crypto, could be a key driver of sentiment on the crypto market,” Erdosi added.
