Takeaways from the conference:
-
As the Federal Reserve shifts away from tightening quantitatively and reducing rates, it creates more liquidity. This makes fixed income assets less appealing.
-
The high costs of Oracle debt protection, which are indicative of the increasing risks in tech credit, encourage investors to look for other, more scarce assets such as Bitcoin.
BitcoinBTC() declined 4% Friday to an all-time low of $88,140. This brings its total decline to 19%. Meanwhile, the S&P 500 is now less than 1% from its all-time high. The sharp divergence could soon be closed with Bitcoin’s strong upward move, driven by the major change in central bank policies and increasing credit pressure.
The perfect storm could push Bitcoin past the psychologically important $100,000 threshold before the end of the year.
Bitcoin’s rally could be fueled by the fear of tech credit and the waning appeal of fixed income.
Most critical is Federal Reserve’s shift from quantitative tighteningA process that drains liquidity from the system, by allowing Treasury Securities and Mortgage-Backed Securities to mature without investing the proceeds. This program was officially stopped by the Fed on December 1.
In the past six-month period, the Fed balance sheet shrank by $136 Billion, which removed a substantial amount of cash. Markets are anticipating a lower rate phase. CME FedWatch Tool data shows that bond futures indicate an 87% chance of a rate reduction at the Wednesday Fed meetingExpectations are that three reductions will be fully priced by September 2026.
Low interest rates and an increase in systemic liquidity Fundamentally reduce the demand for assets with fixed income. In parallel with the Fed cutting rates, returns on newly issued bonds also decrease, making them less desirable to institutional funds. According Bloomberg reports that US money market funds have reached a new record of $8 trillion.
This potential capital rotation will be further influenced by emerging structural risks in equity markets and in particular in the tech industry. Credit Default Swaps are costing Oracle (ORCL), a company that holds debt, more than they used to. surged The highest levels since 2009 Oracle had $105 Billion in debt (including leases) at the end of August.
Related: US investors consider crypto less as risk-taking drops–FINRA study
Bloomberg claims that Oracle will generate revenue of hundreds of millions of dollars from OpenAI. Bloomberg US Corporate Bond Index shows that the company is by far the biggest debt issuer in the US corporate bond index outside the banking sector. “Investors are becoming increasingly concerned about how much more supply may be on the horizon,” Citigroup Credit Strategy Report
Bank of America claims that steady Fed rates will increase the odds of an economic slowdown
Investors are concerned about this risky push. The initiative includes President Donald Trump’s Genesis Mission. A national program aimed at increasing US scientific output through AI and the use of nuclear energy. This surge in debt protection reflects the extreme anxiety of investors about massive spending fueled by debt, and which could not provide adequate returns.
Michael Hartnett is a Bank of America strategist argued The odds of an overall economic slowdown increase if the Fed communicates that interest rates will remain steady. As institutional capital seeks to lower its exposures to traditional technology, this uncertainty combined with a need for growth not dependent on stimuli increases the appeal of Bitcoin’s scarcity.
Market pricing for rate reductions and the Fed officially ending its liquidation drain program provide an enormous tailwind. Due to the massive AI debt, tech credit risk is on the rise. Capital will therefore be structurally primed for a rotation into rare assets. The convergence of these factors creates an opportunity for BTC’s price to surpass the $100 milestone in the coming months.
This article was written for informational and educational purposes only and does not constitute legal or investment advice. These are solely the opinions, views, and thoughts of the author and may not reflect the opinions and views of Cointelegraph.
This article contains no investment recommendations or advice. Risk is inherent in every investment and trading strategy. The reader should always do research prior to making their decision. Cointelegraph, while striving to give accurate information and in a timely manner, does not guarantee accuracy, completeness or reliability. This article might contain risky and uncertain forward-looking statements. Cointelegraph is not responsible for loss or damages resulting from your reliance upon this information.
“This article is not financial advice.”
“Always do your own research before making any type of investment.”
“ItsDailyCrypto is not responsible for any activities you perform outside ItsDailyCrypto.”
Source: cointelegraph.com
