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February 19, 2024

Bitcoin Breaches $1 Trillion As Halving Draws Closer

February 19, 2024

As Bitcoin surges past $51,000, reclaiming its position among the top 10 global assets, investors brace for the approaching halving event, anticipating its impact on the cryptocurrency’s price trajectory. 

Concurrently, market sentiment reaches fever pitch, with the Fear & Greed Index hitting highs reminiscent of Bitcoin’s previous record-breaking peak.

Amidst speculation on Federal Reserve policy shifts and economic indicators, the cryptocurrency market witnesses a surge in call option buying, signaling a resounding bullish sentiment among investors. 

There is a lot to cover, so let’s get started.

Bitcoin enters the top 10 assets list as halving draws closer

On the back of a soaring price that has surpassed $51,000, Bitcoin has once again breached the $1 trillion market capitalization threshold.

Bitcoin market capitalization
Bitcoin market capitalization

During the previous 2021 bull run, Bitcoin first crossed the $1 trillion market cap mark in April, before crossing it for a second time when it reached an all-time high of $69,000 in November. 

This surge also coincided with the broader crypto market reaching a combined market capitalization of $3 trillion for the first time.

According to reports, the most recent surge in Bitcoin’s price and market cap can be attributed to many factors, including the rising positive sentiment among investors, fueled by a sustained bull market and net positive inflows from newly launched spot ETFs.

As a result, data collated by companiesmarketcap.com shows that the world’s leading cryptocurrency has now edged back into the top 10 global assets, pushing out Berkshire Hathaway which now sits in the number 11 spot.

Top global assets by market cap
Top global assets by market cap

Looking ahead, investors remain optimistic that the upcoming Bitcoin halving event will play a pivotal role in driving the cryptocurrency’s price higher. 

Currently, Bitcoin miners are rewarded with 6.25 BTC per block, amounting to roughly $14 billion annually based on a price of $43,000 per Bitcoin. 

However, post-halving, this reward will be halved to 3.125 BTC per block, reducing the annual mining rewards to $7 billion.

This leads many to believe that the price of Bitcoin may spike higher due to a reduction in annual supply.

In addition, psychologically, many of the large players in the crypto space believe that the preceding 12 months after a Bitcoin halving event will show strong performance. A theory that many investors try to front-run.

While no outcome is certain, the halving event is now less than 70 days away. 

Fear and greed index peaks at 2021 highs

Market sentiment has reached new heights as the Fear & Greed Index for Bitcoin surged to its highest level since the record-breaking peak of $69,000 in November 2021. 

The index, which amalgamates data on market momentum, volatility, volume, and social media activity, peaked at 79 out of 100 on Wednesday, which signals a period of extreme greed among traders.

Crypto Fear & Greed Index from 2018 to 2024
Crypto Fear & Greed Index from 2018 to 2024

With Bitcoin comfortably trading above $50,000 and a surge in various other crypto assets, investors are engulfed in a phase of “extreme greed,” as per the well-known sentiment gauge.

A phase of ‘extreme greed’ that now echoes the euphoria witnessed during Bitcoin’s previous all-time high.

Published by alternative.me, the Fear & Greed Index provides insights into the market’s enthusiasm for Bitcoin and other prominent digital currencies. 

Before peaking at 79 this week, the Fear & Greed Index has hovered consistently above 70 since October 2023 which is indicative of a period of “greed”.

However, it witnessed a brief decline to 50 following the approval of Bitcoin ETFs in January, an event that initially triggered a “sell-the-news” response.

Federal Reserve to maintain high interest rates for longer? 

According to business analysts, the Federal Reserve might maintain its stance on high interest rates longer than anticipated.

Despite investor expectations for rate cuts in early 2024, current market dynamics indicate a likely continuation of the status quo. 

John Hancock’s, Emily Roland, highlighted in a recent CNBC interview that the Fed’s cautious approach stems from the potential risk of further heating up an already buoyant economy. 

As of now, there are no significant cracks in economic indicators or the labor market, largely due to sustained consumer spending.

Recent data revealed that Americans continued their spending spree during the final quarter of 2024, injecting an additional $133.9 billion into the economy, further propelling growth. 

Alongside boosting consumer activity, this cash is also finding its way into the stock market, driving momentum across various sectors.

Crypto-related stocks and AI-focused companies are witnessing significant momentum in the market.

Likewise, tech giants such as Nvidia are also experiencing substantial growth, with a staggering 53% increase in stock value this year alone. 

According to Roland, such momentum across sectors indicates a resilient market environment, influencing the Fed’s interest rate decision-making.

With the Federal Reserve signaling a likely pause on rate cuts during January’s FOMC meeting and now investors cutting expectations of a rate cut before May, it appears that the current economic landscape, fueled by consumer spending and market momentum, could prolong the Fed’s hold on rate adjustments.

Target rate probabilities for March FOMC meeting
Target rate probabilities for March FOMC meeting

Bitcoin call options target $60,000 and $80,000 strike prices

In a recent report by QCP Capital, a surge in bitcoin call option buying has been observed at strike prices above $60,000, indicating a notable uptick in bullish sentiment among investors. 

The report highlights significant activity in call options expiring from April through to December of this year.

According to the Options Vol-cast report by QCP Capital, approximately $10 million has been spent on premiums for call options at $60,000 and $80,000 strike prices expiring between April and December. 

This surge in call option buying reflects growing confidence in Bitcoin’s upward potential among market participants.

Deribit, a leading cryptocurrency derivatives exchange, corroborates these findings, reporting a substantial concentration of open bitcoin call options at strike prices exceeding $65,000 for expiries from April through to December. 

Open interest of Bitcoin call options by strike price
Open interest of Bitcoin call options by strike price

Particularly noteworthy is the focused cluster of call options for the December end-of-year expiry, centered around a strike price of $100,000.

The data also reveals that the largest volume of bitcoin options are calls set at a $60,000 strike price for the end of March expiry, totaling 1,273 contracts with a notional value exceeding $67 million. 

Volume of call options at different strike prices and expiry dates

This suggests a prevailing optimism among investors regarding Bitcoin’s short-term price trajectory.

Call options provide investors with the right, but not the obligation, to purchase Bitcoin at a predetermined price within a specified timeframe, reflecting a bullish outlook on the digital asset.

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