Markus Thielen, the head of research at Matrixport and founder of DeFi Research, is anticipating the bullish momentum of Bitcoin to persist, propelling prices to approximately $40,000 by the year’s end.
Thielen’s positive outlook is grounded in various factors, including the positioning of the options market and the anticipation of a dovish stance from the Federal Reserve (Fed), as stated in a recent note. He expressed confidence, stating, “Bitcoin will reach $40,000 – if not even $45,000 – by the year’s end.”
Bitcoin (BTC) has exhibited a remarkable upward trajectory throughout the year, witnessing a value more than doubling.
Over the last four weeks alone, the primary cryptocurrency has experienced a surge of nearly 40%.
This recent rally has sparked heightened interest in call options, derivatives that grant the buyer the right to acquire the underlying asset at a predetermined price in the future.
Thielen observed that the growing demand for these optimistic bets has left market makers, typically the counterparty to clients’ trades, vulnerable to additional upward potential in the cryptocurrency market. As prices continue to climb, these entities are expected to purchase Bitcoin and implement hedging strategies, contributing to the overall bullish pressure in the market.
Options, Inflation, and Spot ETFs to Benefit Bitcoin Surge
The prediction made by Thielen is significantly influenced by the options market dynamics.
He highlighted the presence of two substantial options expiries scheduled for November 24 and December 29, boasting outstanding open interest figures of $3.7 billion and $5.4 billion, respectively.
With outstanding call options surpassing puts by 85%, the $40,000 strike price stands out with the highest open interest.
As the market approaches the $40,000 threshold, an increasing number of participants will find it necessary to acquire Bitcoin for hedging purposes, consequently contributing to the upward pressure on the price.
Thielen stated, “There will be a broad interest in pushing prices to this $40,000 level. The odds are high that we reach this level.”
A reinforcing factor in favor of the bullish scenario is the diminishing U.S. inflation rate and the potential for rate cuts or liquidity easing by the Federal Reserve.
Despite the Fed having raised interest rates by 525 basis points over the 14 months leading up to May 2023 to counteract increasing inflation, recent data shows a slowdown, with the U.S. Consumer Price Index (CPI) rising by 3.2% in the 12 months through October. This has spurred speculation that the Fed may contemplate rate cuts to stimulate the economy and encourage investment in riskier assets.
Thielen asserts that the existing inflation rate and interest rate conditions suggest the possibility of future rate cuts.
Thielen proposed that a 2.0% spread between the inflation rate (CPI) and interest rates might pave the way for a 200 basis point rate cut in the coming year, a development that could bode well for Bitcoin’s bullish trajectory.
Additionally, positive sentiments regarding the approval of spot exchange-traded funds (ETFs) could further fuel price gains. Bloomberg analysts have assigned a 90% likelihood of the Securities and Exchange Commission (SEC) approving one or more spot ETFs before January 10, adding another potential catalyst to the optimistic outlook for Bitcoin.
