Bitcoin’s End-of-year Run To $100k Heavily Depends On Fed Pivot...

Bitcoin’s chance of hitting $100,000 before New Year’s Eve depends on investors’ reaction to the Fed policy pivot, and the market’s response to soaring BigTech and AI company debt.

The Federal Reserve’s move away from quantitative tightening and rate cuts creates liquidity, making fixed-income assets less attractive.

Surging tech credit risks, as evidenced by high Oracle debt protection 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 perfect storm has the potential to propel Bitcoin to the psychologically critical $100,000 barrier before the year concludes.

The most critical factor is the Federal Reserve’s pivot from quantitative tightening, a process of draining liquidity from the financial system by allowing the maturity of Treasury securities and mortgage-backed securities without reinvesting the proceeds. The Fed officially halted this program on Dec. 1.

Over the last six months, the Fed's balance sheet contracted by $136 billion, removing a significant amount of cash. The market is aggressively anticipating the next phase based on lower interest rates. According to CME FedWatch Tool data, bond futures assign an 87% probability to a rate cut at the Wednesday Fed meeting, with expectations fully pricing in three cuts by September 2026.

Lower interest rates and increasing systemic liquidity fundamentally erode the demand for fixed-income assets. As the Fed cuts rates, the returns on new bond issuances also decline, making them less attractive to institutional funds. According to Bloomberg, there is now a record-high $8 trillion in US money-market funds.

The potential capital rotation is further incentivized by structural risks emerging in the equity markets, especially in the tech sector. The cost of protecting Oracle’s (ORCL) debt against default using Credit Default Swaps has surged to its highest level since 2009. Oracle had $105 billion of debt, including leases, as of the end of August.

Related: US investors consider crypto less as risk-taking drops–FINRA study

Source: CoinTelegraph