Bitcoin Surpasses $45,000 as U.S. Debt Rises
Bitcoin has reached a price level of $45,000 for the first time since January 12, following a 6% rally in just two days. This surge in Bitcoin’s price coincided with the S&P 500 reaching a record high on February 7, indicating that investors are seeking protection from inflation. Furthermore, Bitcoin derivatives data suggest that there is still room for further upward momentum.
The United States government debt currently stands at a historical high of $34.2 trillion. While some argue that the absolute number is less important than the interest paid, Federal Reserve Chair Jerome Powell acknowledged in a February 4 interview that the long-term fiscal path is unsustainable. This situation may lead the Fed to cut interest rates from the current 5.25% throughout 2024, which would align with market expectations. When returns on fixed-income investments decrease, investors tend to turn to stocks and commodities as safe havens.
The Congressional Budget Office predicts that the U.S. budget deficit will increase by almost 66% over the next 10 years due to debt-servicing costs. The U.S. total public debt is also expected to exceed 100% of the nation’s gross domestic product by 2025, according to Congress’s independent fiscal watchdog. This puts pressure on the U.S. dollar as the global reserve currency and the demand for U.S. Treasurys.
In addition to the nation’s rising debt, U.S. consumer debt delinquency rates have reached their highest level in 12 years. Data from the New York Fed shows that consumer credit card debt balances had an annualized default rate of 8.5% in the final months of 2023, while auto loans reached 7.7%. This increase in household debt could spell trouble for the banking sector and the overall economy.
Given the uncertain macroeconomic environment, assets like Bitcoin, which are scarce, have become attractive to investors. This partially explains the rally to $45,000. However, there is no guarantee that this new price level will be sustained, so investors should closely monitor the positions of whales and arbitrage desks to determine if excessive leverage played a role in the price increase.
Bitcoin derivatives data indicate that there is no excessive optimism among professional traders. The BTC futures premium recently reached its highest level in three weeks, surpassing the 10% threshold for bullish markets. Additionally, the BTC options skew, which measures traders’ expectations, entered the bullish area for the first time in two months after Bitcoin broke above $45,000. These metrics suggest moderate optimism, which is positive considering the challenging macroeconomic conditions.
It is worth noting that the approval of the spot Bitcoin exchange-traded fund on January 10 led to increased volatility and the forceful liquidation of $150 million worth of long futures contracts in just two days. This may explain why some investors are exercising caution despite the recent price rally. However, the current Bitcoin derivatives metrics align with the current market conditions, indicating the potential for further upward momentum and a possible path towards $49,000.
Please note that this article does not provide investment advice or recommendations. Investors should conduct their own research and analysis before making any decisions.