Markus Thielen, research head at Matrixport and founder of DeFi Research, is optimistic about the future of Bitcoin and predicts that its bullish momentum will continue, pushing prices towards $40,000 by the end of the year. Thielen’s positive outlook is based on several factors, including the options market positioning and expectations of a dovish stance from the Federal Reserve (Fed).
Surging Demand for Call Options
Bitcoin has experienced a remarkable upward trajectory this year, doubling in value and surging by nearly 40% in the past four weeks alone. The recent rally has stimulated demand for call options, which are derivatives that give buyers the right to purchase the underlying asset at a predetermined price in the future.
Thielen points out that the increased demand for these bullish bets has left market makers exposed to further upside potential in the cryptocurrency market. As prices continue to rise, these entities are likely to buy Bitcoin and hedge their positions, adding to the overall bullish pressure in the market.
Significance of Options Expiries
The options market also plays a significant role in Thielen’s prediction. He highlights two substantial options expiries scheduled for November 24 and December 29, with outstanding open interest of $3.7 billion and $5.4 billion, respectively. The number of outstanding call options exceeds puts by 85%, with the $40,000 strike price having the most significant open interest.
As the market approaches the $40,000 level, more participants will need to purchase Bitcoin to hedge their positions, further driving up the price. Thielen confidently states, “There will be a broad interest in pushing prices to this $40,000 level. The odds are high that we reach this level.”
Additional Factors Supporting the Bullish Case
Another supporting factor for the bullish case is the receding U.S. inflation rate and the possibility of rate cuts or liquidity easing by the Federal Reserve. The Fed has raised interest rates by 525 basis points over 14 months to May 2023 to combat rising inflation. However, inflation has recently slowed, leading to speculation that the Fed may consider rate cuts to stimulate the economy and incentivize investment in riskier assets.
Thielen believes that the current inflation rate and interest rates indicate the potential for rate cuts in the future. He suggests that a spread of 2.0% between the inflation rate (CPI) and interest rates could lead to a 200 basis point rate cut next year, which would be bullish for Bitcoin.
Spot ETF Approval
Lastly, optimism surrounds the approval of spot exchange-traded funds (ETFs), which could contribute to price gains. Bloomberg analysts have given a 90% chance of the Securities and Exchange Commission (SEC) approving one or more spot ETFs before January 10.
