Bitcoin surpassed $45,000 on Feb. 8, reaching the price level for the first time since Jan. 12 after rallying 6% in two days. This movement coincided with the S&P 500 reaching a record high on Feb. 7, indicating that investors sought protection from inflation. In addition to crypto and stocks rallying to new highs, Bitcoin (BTC) derivatives data show there’s room for further bullish momentum.
Bitcoin rallies as U.S. government debt soars
The United States government debt currently stands at a historical high of $34.2 trillion. Some analysts and economists argue that the absolute number matters less than the interest paid, but U.S. Federal Reserve Chair Jerome Powell admitted to the long-term “unsustainable fiscal path” in a Feb. 4 interview.
This situation provides a strong incentive for the Fed to cut interest rates from the current 5.25% throughout 2024, which is the base case and aligned with market expectations. When returns on fixed-income investments are reduced, investors tend to seek refuge in stocks and commodities.
The Congressional Budget Office estimates that the U.S. budget deficit is set to soar by almost 66% within 10 years due to debt-servicing costs. Congress’s independent fiscal watchdog warned that the U.S. total public debt is set to rise above 100% of the nation’s gross domestic product by 2025, putting pressure on the U.S. dollar as the global reserve currency and the demand for U.S. Treasurys.
Apart from the nation’s debt trajectory, U.S. consumer debt delinquency rates have soared to their highest level in 12 years. Data from the New York Fed on Feb. 6 showed consumer credit card debt balances reaching an annualized 8.5% default rate in the final months of 2023, while auto loans reached 7.7%, according to Axios. The stress on household balance sheets could mean trouble for the banking sector and the economy in general.
The uncertain macroeconomic backdrop provides an opportunity for scarce assets such as Bitcoin, which partially explains the rally to $45,000. Still, that provides no guarantee that the new price level will be sustained, so investors should analyze how whales and arbitrage desks are positioned to understand if excessive leverage was behind the move.
Bitcoin derivatives show no signs of excessive optimism
Pro traders tend to prefer monthly futures contracts due to the absence of a funding rate, which causes these instruments to trade 5% to 10% higher relative to regular spot markets to account for the longer settlement period.
Data reveals that the BTC futures premium rose to its highest level in three weeks on Feb. 8, breaking above the 10% threshold for bullish markets. Moreover, the metric shows no signs of excessive optimism, paving the way for Bitcoin to sustain at the $45,000 support.
To exclude externalities that might have solely impacted Bitcoin futures, one should analyze options markets. The 25% delta skew can assess if pro traders became more optimistic. In short, if traders expect a drop in Bitcoin’s price, the skew will rise above 7%, while periods of excitement typically have a -7% metric.
After Bitcoin’s price broke above $45,000 on Feb. 8, the BTC options 25% skew entered the -7% bullish area for the first time in two months. Similarly to the BTC futures metric, the current level is not far from the neutral range, indicating moderate optimism — which is extremely positive given that some analysts fear that the worsening macroeconomic conditions could reverberate negatively for Bitcoin’s price.
Bitcoin’s price action after the spot Bitcoin exchange-traded fund approval on Jan. 10 could explain why bulls are exerting caution, as the increased volatility triggered $150 million long futures contracts being forcefully liquidated in two days. The initial euphoria that led Bitcoin to hit $49,000 was followed by a 15.3% correction down to $41,500 in less than two days. Thus, the present Bitcoin derivatives metrics are consistent with the current market conditions, paving the way for further bullish momentum and a potential path toward $49,000.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.