The new year started on a happy note with bitcoin (BTC) moving towards $100,000, delaying December’s price weakness. Amid the cheers, CoinDesk cautioned against excessive optimism, highlighting the undercurrents of sellers seeking to reassert themselves.
A week later, BTC returned to $93,000 after failing to maintain gains above $100,000 on Monday, according to CoinDesk data.
The latest downturn comes at a time of increased volatility in the U.S. Treasury market, where long-term yields extended the fourth-quarter 2024 rise to multi-month highs on economic data pointing to stubborn inflation in the United States.
It’s not just nominal bond yields: real or inflation-adjusted yields are also rising. The yield on the 10-year inflation-indexed US security jumped to 2.29%, the highest since November 2023, according to charting platform TradingView.
When the yield offered by fixed income products starts to look more attractive in real terms, the incentive to invest in risky assets diminishes. This is especially true when rising yields are driven by the Fed’s hawkish expectations rather than economic growth.
This is precisely the case this week. With data pointing to persistent inflation, traders pushed back the timetable for the Fed’s next rate cut to June.
“The decline in the Bitcoin spot price this morning appears to be a response to higher yields in the Treasury market and the reduced likelihood of further rate cuts this year. This has impacted the near-term market outlook for crypto assets, which tend to do better in more liquid conditions,” Thomas Erdosi, product manager at CF Benchmarks, told CoinDesk.
It’s worth noting that surging yields aren’t just a U.S.-centric problem. Yields are soaring in major economies, with Japan and the United Kingdom joining the fray. The UK is experiencing its highest long-term returns since 1998.
All of this impacts stocks, similar to what is happening with BTC. Major indexes like the Nasdaq and S&P 500 also lost their New Year’s gains.
But here’s a twist: Despite macroeconomic uncertainties, the BTC Deribit-listed options market remains bullish, with the dollar value of active calls standing at $14.87 billion at press time, or nearly two times the value of active put options, 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 a notional open interest of $1.47 billion. The $101,000 and $110,000 strike calls also show open interest of more than $1 billion each. Meanwhile, the most popular put option at $75,000 has an open stake 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 the market situation by the end of this month. President Trump’s inauguration on January 20, heralding an increased likelihood of a much more favorable regulatory environment for crypto, could be a key driver of crypto market sentiment,” Erdosi added.
