Data Bitcoin may rise to $40,000 amidst global economic turmoil

Bitcoin's Value Could Reach $40,000 in Response to Global Economic Turmoil

Author: Marcel Pechman, Cointelegraph; Translation: Song Xue, LianGuai

Despite the stagnant price, the 24.2% increase since October 7th has boosted confidence due to the upcoming 2024 halving and the potential approval of a Bitcoin Exchange-Traded Fund (ETF) in the United States.

Investors are concerned about the gloomy outlook for the global economy

Bears expect that as the Federal Reserve maintains interest rates above 5.25% to curb inflation, more macroeconomic data will support global economic contraction. For example, on November 6th, China’s October exports decreased by 6.4% compared to the previous year. Additionally, Germany’s industrial production for October decreased by 1.4% compared to the previous month, as announced on November 7th.

Despite the possibility of major oil-producing countries cutting supplies, weak global economic activity has caused WTI oil prices to fall below $78 for the first time since the end of July. Comments from Minneapolis Fed President Neil Kashkari on November 6th set a bearish tone and sparked a “flight to quality” response.

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Kashkari said, “We haven’t fully solved the inflation problem. We have more work to do.”

Investors have turned to US Treasuries for shelter, causing the 10-year bond yield to drop to 4.55%, the lowest level in six weeks. Oddly enough, the S&P 500 index has reached 4,383 points, the highest level in nearly seven weeks, surpassing expectations during the global economic slowdown.

This phenomenon can be attributed to the fact that companies in the S&P 500 index collectively hold $26 trillion in cash and equivalents, providing some protection in the face of high interest rates. Although the risk exposure of major technology companies continues to increase, the stock market offers scarcity and dividend yields, which align with the preferences of investors during uncertain times.

Meanwhile, open interest in Bitcoin futures has reached its highest level since April 2022, reaching $16.3 billion. As the Chicago Mercantile Exchange solidifies its position as the second-largest Bitcoin derivatives market, this milestone becomes even more important.

Healthy demand for Bitcoin options and futures

The use of Bitcoin futures and options has recently become a media headline. Investors believe that the potential for the spot BTC ETF and the halving of Bitcoin in 2024 could drive demand for leverage.

One way to measure the health of the market is to check the premium of Bitcoin futures, which measures the difference between the two-month futures contract and the current spot price. In a strong market, the annualized premium (also known as the basis) should typically be in the range of 5% to 10%.

Bitcoin 2-month futures annualized premium (basis). Data source: Laevitas

Note how this indicator has reached its highest level in over a year, at 11% premium. This suggests that the strong demand for Bitcoin futures is primarily driven by leveraged long positions. If the opposite scenario were true, with investors heavily betting on a decrease in Bitcoin price, the premium would stay at 5% or lower.

Another evidence can be derived from the Bitcoin options market, looking at the demand between call (buy) and put (sell) options. Although this analysis doesn’t include more complex strategies, it provides a broad context for understanding investor sentiment.

Deribit BTC put options 24-hour trading volume ratio. Data source: Laevitas

Over the past week, the average value of this indicator has been 0.60, reflecting a 40% inclination towards call (buy) options. Interestingly, Bitcoin options open interest has grown by 51% in the past 30 days, reaching $15.6 billion, and this growth has also been driven by call tools, as shown by the put options trading volume data.

As Bitcoin’s price reaches its highest level in 18 months, there may be some degree of skepticism and hedging. However, the current state of the derivatives market shows healthy growth without overly optimistic signs, consistent with bullish prospects of reaching target prices of $40,000 and higher by the year-end.

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