Key Points:
Over $313 million in Bitcoin short positions were liquidated, indicating a market environment of short squeezing.
Gold continues to rise, highlighting investors' demand for alternative assets amid increasing expectations of interest rate cuts.
Bitcoin (BTC) briefly surpassed $121,000 on Thursday, reaching a seven-week high. Bullish sentiment remains strong. The current market environment is far better than in mid-August when Bitcoin briefly touched $124,000.
In addition to reduced recession fears and rising gold prices, Bitcoin derivatives show that traders are passively adjusting, which typically creates conditions for short squeezes.
In contrast, for nearly two months before mid-August, gold prices had been consolidating around $3,400, while Bitcoin was setting new historical highs. At that time, global trade tensions escalated, and the temporary 90-day exemption on U.S. import tariffs on China was set to expire on August 12, leading the market to anticipate increased inflationary pressures.
The latest U.S. Personal Consumption Expenditures Price Index showed a 2.9% increase from August, in line with analysts' expectations. As inflation is no longer seen as a major risk, traders' confidence in the Federal Reserve (Fed) continuing to push for interest rate cuts has increased.
Traders who bought Bitcoin above $120,000 in August were ultimately disappointed, as the import tariffs did not impact the U.S. trade balance or retail sales in the short term. According to the World Gold Council, global central banks continue to increase their gold holdings. In October, Bitcoin's rebound coincided with a 16% rise in gold over six weeks.
According to the CME FedWatch tool, the implied probability of the Fed cutting rates to 3.5% or below by January 2024 is 40%, up from just 18% in mid-August. Although investors are optimistic about inflation trends, the ongoing weakness in the labor market may pose challenges to the recent highs of the S&P 500, especially amid increasing uncertainty regarding a U.S. government shutdown.
According to Reuters, on Monday, Fed Vice Chair Philip Jefferson expressed concerns about the labor market, warning that it "could come under pressure" without support. Jefferson attributed the pressure to U.S. President Donald Trump's trade, immigration, and other policies. He added that these effects "will become more apparent in the coming months," prompting traders to seek alternative hedging tools.
Derivatives data shows that three days before Bitcoin set its historical high in mid-August, traders had roughly equal expectations for both upward and downward movements. Currently, the same BTC options indicator shows that market concerns about a pullback are easing, with put option premiums exceeding call option premiums.
According to CoinGlass, over $313 million in Bitcoin leveraged short futures positions were liquidated from Wednesday to Thursday. This further confirms that the market's reaction was muted when Bitcoin broke through $120,000; if bullish momentum continues, the likelihood of large-scale profit-taking in the futures market decreases.
OpenAI completed a record $500 billion share sale, becoming another factor alleviating short-term risks. Previously, U.S. restrictions on high-end AI chip exports to China and Meta's suspension of hiring in its AI department have subjected the AI industry to stricter regulations.
As investors' expectations for U.S. interest rate cuts increase, the risk of a stock market pullback diminishes, making the prospect of Bitcoin (BTC) reaching $125,000 or even higher increasingly clear. Meanwhile, gold continues to rise, indicating a sustained preference among traders for alternative assets outside traditional bonds and stock markets.
Related: Bitcoin Returns to $120,000, Strategy's BTC Holdings Value Hits New High of $77.4 Billion
Original: “Bitcoin's Next Stop Could Be $125K: Here’s Why”
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