Markus Thielen from DeFi Research shared his prediction on how high <a href="https://en.coin-turk.com/crypto-market-tumbles-bitcoin-btc-records-over-2-loss-major-metrics-to-consider/”>Bitcoin (BTC) could rise by the end of the year. Thielen expects the largest cryptocurrency to close the year at $40,000, or even $45,000.
Bitcoin has more than doubled in value since the beginning of the year and has seen a 40% increase in the last four weeks alone. The recent surge has been driven by increased demand for call options and derivatives, which give buyers the right to purchase the underlying asset at a predetermined price.
According to Thielen, the increased demand for call options, which reflects the expectation of a further rise, has exposed some market participants, particularly market makers who are always on the other side of customer transactions, to the ongoing surge in the leading cryptocurrency. The expert believes that these investors will likely protect themselves by buying BTC, thus increasing the upward pressure.
Two massive options with open positions of $3.7 billion and $5.4 billion will expire on November 24th and December 29th, respectively. Call options account for over 85% of the total options, with significant interest in options at $40,000. Thielen stated, “As the price approaches $40,000, more investors will have to buy Bitcoin to protect themselves,” suggesting that this could be enough to push the price above $40,000.
Other Supporting Factors: Fed, Interest Rates, and Inflation
Thielen also pointed out another factor that could support the rise, namely the decrease in inflation in the United States and the expectation that the Fed will cut interest rates or provide liquidity ease. As is known, the Fed raised interest rates by 525 basis points in the 14-month period until May of this year to curb rising inflation. While tightening liquidity rapidly prevented investment in risky assets, it was partly responsible for the collapse last year.
However, inflation, which reached as high as 9.1% last June, has been slowing down significantly in recent months and continues its downward trend. Inflation data released on November 14th revealed a 3.2% increase in inflation during the 12-month period ending in October, following a 3.7% increase in September. According to UBS, the slowdown in inflation means that the Fed could reduce its policy rate from the current range of 5.25% to 5.5% to 2.75%. According to Fed funds futures, markets are currently pricing in a 90 basis point interest rate cut by the end of 2024.
Regarding inflation, Thielen commented, “Currently, headline inflation in the US is at 3.2% while the interest rate is at 5.25%. The difference is 2.0%. If our inflation model was valid, this difference would even be 3.0%, which means we could expect a 200 basis point interest rate cut next year. This means a rise for the cryptocurrency market,” said Thielen. Thielen expects inflation measured in the US to fall below the Fed’s 2% target by 2024.
