Bitcoin’s (BTC) bullish momentum will likely remain intact heading into the end of the year, lifting prices to the $40,000 mark, according to Markus Thielen, research head at crypto services provider Matrixport and founder of analytics portal DeFi Research.
“Bitcoin will reach $40,000 – if not even $45,000 – by the year’s end,” Thielen said in a note shared with CoinDesk, citing options market positioning and dovish Federal Reserve (Fed) expectations as catalysts for continued price gains. The cryptocurrency has more than doubled this year, with prices rising nearly 40% in the past four weeks alone.
The recent bullish action spurred demand for call options or derivatives, giving the purchaser the right to snap up the underlying asset at a predetermined price later.
Per Thielen, the increased demand for the so-called bullish bets has left some market participants, mainly market makers, who are always on the opposite side of clients’ trades, exposed to continued upside in cryptocurrency. These entities will likely buy BTC and hedge themselves as prices rise, adding to bullish pressures around the cryptocurrency.
“We have two colossal options expiries on Nov. 24 and Dec. 29 with $3.7bn and $5.4 billion open interest outstanding. There are 85% more calls outstanding than puts, with the 40,000 strikes having the most significant open interest. The closer we get to $40,000, the more people will have to buy bitcoin to hedge themselves,” Thielen noted.
“There will be a broad interest in pushing prices to this $40,000 level. The odds are high that we reach this level,” Thielen added. At press time, bitcoin was changing hands at $37,445.
Another factor supporting the bullish case is the receding U.S. inflation rate and hopes for rate cuts or liquidity easing by the Fed.
The Fed rates by 525 basis points in 14 months to May 2023 to tame rampant inflation. The Fed’s rapid liquidity tightening disincentivized investing in risky assets and was partly responsible for last year’s crypto crash.
The inflation rate, however, has markedly slowed in recent months, having reached as high as 9.1% in June last year. Data released Tuesday showed the U.S. CPI climbed 3.2% in the 12 months through October, following September’s 3.7% rise.
Per UBS, slowing inflation means the Fed could halve the benchmark interest rate to 2.75% from the present range of 5.25% to 5.5%. Per the Fed funds futures, markets have priced in 90 basis points of rate cuts by the end of 2024.
“The U.S. inflation headline CPI is currently at 3.2% while interest rates are at 5.25% – a difference of 2.0%. If our inflation model is current, then this spread would even be 3.0% – so we could expect 200 basis points of rate cuts next year. This is bullish,” Thielen said.
Thielen expects inflation, as measured by the consumer price index (CPI), to drop below the Fed’s 2% target in 2024.
Lastly, the spot ETF optimism could continue to support price gains. According to Bloomberg’s analysts, there is a 90% chance the SEC will approve one or more spot ETFs before Jan. 10.
