Key takeaways:
– The US Federal Reserve’s shift toward balance sheet expansion may supply the liquidity needed to lift Bitcoin and broader risk markets.
– The war in Iran and high oil prices may be driving investors toward scarce assets as a hedge against rising inflation.
On Tuesday, Bitcoin (BTC) topped $76,000 for the first time in over two months, triggering about $285 million in leveraged short liquidations. The rally tracked the S&P 500 closely, suggesting a macro-driven move. Is the Iran war the main driver of Bitcoin’s gains, and how likely is a bull trap?
Crude oil prices steadied near $95 after peaking at $104 over the weekend, a development many traders view as supportive for risk assets. An inverted chart of crude versus BTC shows a high intraday correlation in this environment.
The conflict involving Iran has heightened concerns about US inflation and supply-chain disruptions, limiting central banks’ ability to cut rates and weighing on growth. At the same time, gains in the S&P 500 and gold point to a growing expectation of stimulus, pushing investors into scarce assets.
The recent S&P 500 rally after failed negotiations to reopen the Strait of Hormuz may seem counterintuitive, but the increased recession risk strengthens the case for expansionary measures. Whether the Federal Reserve acts cautiously or not, fiscal authorities can authorize infrastructure investment, social programs, or tax credits to support growth.
Inflationary worries align with investors’ Fed policy expectations
Bitcoin doesn’t have to outcompete stocks or gold to attract capital from money market funds and short-term bonds. The longer oil stays above $90, the greater the upward pressure on forward inflation expectations.
Lower expected returns on fixed-income assets could be the primary catalyst for Bitcoin’s move above $75,000. Governments have limited alternatives other than expanding the monetary base if inflationary pressures persist.
The Fed shifted to expanding its balance sheet in January, reversing a two-year trend. This is supportive for risk markets, easing short-term stress in the bond market. Financial institutions and hedge funds now have greater liquidity access and face less pressure to offload US Treasuries, providing temporary relief to stocks.
Whether Bitcoin remains above $75,000 or not, traders have little incentive to take profits after roughly two months near $68,000, given modest gains. Even a rally to $80,000 would represent about a 20% gain from $66,500—relatively modest for recent volatility. Unless traders expect a significant drop in oil, selling pressure on Bitcoin is unlikely to intensify.
Ultimately, with the prospect of expansionary monetary policy and inflationary pressures, bears face an uphill battle. The odds of a successful bull trap appear low.
This article is produced in accordance with Cointelegraph’s Editorial Policy and is intended for informational purposes only. It does not constitute investment advice or recommendations. All investments and trades carry risk; readers are encouraged to conduct independent research before making any decisions. Cointelegraph makes no guarantees regarding the accuracy or completeness of the information presented, including forward-looking statements, and will not be liable for any loss or damage arising from reliance on this content.
