Key takeaways:
– The Federal Reserve’s move away from quantitative tightening and expected rate cuts creates liquidity, making fixed-income assets less attractive.
– Surging tech credit risks, shown by elevated Oracle CDS costs, prompt investors to seek alternative, scarcer assets like Bitcoin.
Bitcoin (BTC) fell 4% on Friday to a low of $88,140, extending its decline to 19% since November. Meanwhile, the S&P 500 is now less than 1% from its all-time high. This sharp divergence may soon close with a strong upside move for Bitcoin, fueled by a major shift in central bank policy and growing credit stress. This convergence could propel Bitcoin to the psychologically critical $100,000 barrier before year-end.
Fixed income’s fading appeal and tech credit scare could fuel Bitcoin rally
The most critical factor is the Federal Reserve’s pivot from quantitative tightening — the process of shrinking its balance sheet by allowing Treasuries and mortgage-backed securities to mature without reinvestment. The Fed officially halted QT on Dec. 1. Over the past six months the Fed’s balance sheet contracted by about $136 billion, removing significant cash from markets.
Markets are aggressively pricing the next phase as lower rates. The CME FedWatch Tool shows an 87% probability of a rate cut at the upcoming Fed meeting, with futures pricing in three cuts by September 2026. Lower interest rates and rising systemic liquidity reduce demand for fixed-income assets: returns on new bond issuances fall, making them less attractive to institutional funds. Bloomberg reports a record-high $8 trillion in US money-market fund assets.
The potential capital rotation away from fixed income is further incentivized by structural risks in equities, particularly tech. The cost of protecting Oracle’s debt via Credit Default Swaps has surged to its highest level since 2009. Oracle had about $105 billion of debt, including leases, as of end-August. The company expects large revenues from OpenAI-related activity, and it is the largest nonbank issuer in the Bloomberg US Corporate Bond Index. Citigroup credit strategists warn investors are increasingly concerned about additional supply on the horizon.
Bank of America says steady Fed rates increase slowdown odds
Bank of America strategist Michael Hartnett has argued that if the Fed signals steady interest rates, the odds of a wider economic slowdown rise materially. Coupled with large, debt-fueled spending tied to AI initiatives, this elevates market unease and drives demand for hedges. Faced with soaring tech credit risk and a desire for growth less dependent on stimulus, institutional capital may look to de-risk traditional tech exposures and rotate into scarce assets — notably Bitcoin.
The Fed’s end to its liquidity-drain program and the market’s aggressive pricing of rate cuts create a tailwind for risk assets outside fixed income. With tech credit risks amplified by massive AI-related debt, capital is structurally primed to move into scarce assets. This convergence establishes a plausible path for BTC to breach $100,000 in the coming months.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. While we strive to provide accurate and timely information, Cointelegraph does not guarantee the accuracy, completeness, or reliability of any information in this article. This article may contain forward-looking statements that are subject to risks and uncertainties. Cointelegraph will not be liable for any loss or damage arising from your reliance on this information.
