The price $BTC aims for $125,000 as rising gold and decreasing inflation risks bolster investor confidence in lower interest rates and the growth of alternative assets.
Key takeaways:
More than $313 million in bearish Bitcoin positions have been liquidated, signaling the emergence of conditions for a short squeeze.
The dynamics of gold's growth underline investors' search for alternative options amid rising expectations of interest rate cuts.
On Thursday, Bitcoin approached the mark of $121,000, reaching a seven-week high. Bulls remain confident, noting that current conditions are much better than in mid-August when BTC briefly touched $124,000.
In addition to easing concerns about recession and supporting gold, Bitcoin derivatives indicate that traders were caught off guard, and such situations often create conditions for a short squeeze.
In contrast, gold held around $3,400 for nearly two months before Bitcoin's price soared to a record high in mid-August. At that time, global trade tensions were escalating as the temporary 90-day reduction of U.S. import tariffs on China was set to expire on August 12, fueling expectations of impending inflationary pressures.
The reduction of inflation risks and the yield of gold contribute to the growth of Bitcoin
The latest U.S. personal consumption expenditures index, released on Friday, showed a 2.9% increase compared to August, in line with analysts' forecasts. As inflation is no longer seen as a serious issue, traders are confident that the U.S. Federal Reserve (Fed) will continue its course of further interest rate cuts.
Traders who bought Bitcoin at prices above $120,000 in August ultimately felt disappointed, as import tariffs did not negatively impact the U.S. trade balance or retail sales, at least in the short term. Bitcoin's rise in October coincided with a 16% increase in gold prices over the past six weeks, while data from the World Gold Council indicated sustained gold accumulation by central banks.
According to CME's FedWatch tool, the implied probability of the U.S. Federal Reserve cutting rates to 3.50% or lower by January 2024 is currently 40%, compared to 18% in mid-August. Investors may welcome the current inflation dynamics, but ongoing weakness in the labor market could jeopardize the recent historic high of the S&P 500 index, especially amid uncertainty surrounding the U.S. government shutdown.
On Monday, Federal Reserve Vice Chairman Philip Jefferson expressed concern about the labor market, warning that it "may face difficulties" if not supported. According to Reuters, Jefferson attributed this pressure to trade, immigration, and other policies of President Donald Trump. He added that these effects "will become even more pronounced in the coming months," prompting traders to seek alternative hedging tools.
Bitcoin derivatives and reduced concerns in the artificial intelligence sector are alleviating selling pressure
According to derivatives data, during the three days leading up to Bitcoin's historic high in mid-August, traders assessed roughly equal chances for price increases and decreases. However, today the same BTC options indicator signals moderate concerns about a correction: put options (selling) are trading at a premium compared to call options (buying).
According to CoinGlass, more than $313 million was liquidated on short positions in Bitcoin futures using borrowed funds from Wednesday to Thursday. This further confirms that the rally above the mark of $120,000 caught markets off guard, reducing the likelihood of significant profit-taking in the futures markets if the bullish trend continues.
Another factor that softened short-term risks was the successful sale of OpenAI shares at a record price of $500 billion. The artificial intelligence sector has come under increased scrutiny after the U.S. imposed export restrictions on advanced AI chips to China and Meta decided to freeze hiring in its AI division.
As investors show greater confidence in an impending reduction in interest rates in the U.S. and see less risk of a stock market correction, Bitcoin's path to the mark of $125,000 and above looks increasingly likely. Meanwhile, the steady dynamics of gold indicate growing interest among traders in alternatives to traditional bond and stock markets.
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