Data highlights Bitcoin’s potential path to $40K amid global economic turbulence

Bitcoin (BTC) has been trading within a tight 4.5% range for the past two weeks, showing consolidation near the $34,700 mark.

Although prices have stagnated, a 24.2% gain since October 7 has bolstered sentiment, driven by the impending impact of the 2024 halving and the potential approval of a Bitcoin spot exchange-traded fund (ETF) in the United States. confidence.

Investors worry about pessimistic outlook for global economy

Bears expect further macroeconomic data to support a global economic contraction as the Federal Reserve keeps interest rates above 5.25% to curb inflation. For example, on November 6, China’s exports in October fell by 6.4% compared with the same period last year. In addition, Germany announced that industrial production in October fell 1.4% from November 7.

Although major oil producers may cut supply, weak global economic activity caused WTI oil prices to fall below $78 for the first time since late July. Comment Speech by Minneapolis Fed President Neel Kashkari on Nov. 6 set a bearish tone, triggering a “turn to quality” reaction.

Kashkari said:

“We haven’t completely solved the inflation problem yet. We have more work to do to get it done.”

Investors have turned to U.S. Treasuries for refuge, causing the 10-year Treasury yield to fall to 4.55%, its lowest level in six weeks. Oddly, the S&P 500 has reached 4,383 points, its highest level in nearly seven weeks, exceeding expectations amid a global economic slowdown.

This phenomenon can be attributed to the fact that companies in the S&P 500 index hold a combined $2.6 trillion in cash and equivalents, providing some protection if interest rates remain high. Despite increasing exposure to major technology companies, equity markets offer scarcity and dividend yields that match investor preferences in uncertain times.

Meanwhile, Bitcoin futures open interest reached its highest level since April 2022, reaching $16.3 billion. The milestone becomes even more significant as the Chicago Mercantile Exchange (CME) solidifies its position as the second-largest Bitcoin derivatives market.

Healthy demand for Bitcoin options and futures

The use of Bitcoin futures and options has made media headlines recently. Investors believe two of the most bullish catalysts in 2024 could drive demand for leverage: the potential of a spot BTC ETF and the Bitcoin halving.

One way to gauge the health of the market is to examine Bitcoin contango, which measures the difference between the two-month futures contract and the current spot price. In strong markets, annualized premiums (also called basis rates) should typically be in the 5% to 10% range.

Note how the indicator reached 11%, its highest level in more than a year. This shows that strong demand for Bitcoin futures is primarily driven by leveraged long positions. If the opposite were true, and investors were betting heavily on a fall in Bitcoin prices, the premium would remain at 5% or less.

Another piece of evidence can be drawn from the Bitcoin options market, comparing demand between call (buy) and put (sell) options. While this analysis does not cover more complex strategies, it provides broad context for understanding investor sentiment.

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Over the past week, the indicator has averaged 0.60, reflecting a 40% preference for bullish (buy) options. Interestingly, Bitcoin options open interest has grown 51% over the past 30 days to $15.6 billion, and this growth has also been driven by bullish instruments, as put volume data shows.

With the price of Bitcoin reaching its highest level in 18 months, there is likely to be some degree of skepticism and hedging. However, current conditions in the derivatives market show healthy growth and no signs of over-optimism, which is consistent with bullish prospects for reaching $40,000 and higher prices by the end of the year.