Key Takeaways:

• Over $313 million in Bitcoin short positions were liquidated, indicating a potential short squeeze.
• The rise in gold prices shows a shift in investor preferences towards alternative assets as rates are anticipated to decline.

Bitcoin (BTC) approached the $121,000 mark on Thursday, its highest point in over a month. Investors remain optimistic, particularly as the current climate is perceived to be much more robust than in mid-August, when Bitcoin almost touched $124,000.

As recession fears ease and gold’s momentum persists, derivatives data implies traders were unprepared for the price movements, often a precursor to a short squeeze.

Gold/USD vs Bitcoin/USD Gold/USD (left) vs Bitcoin/USD. Source: TradingView / Cointelegraph

In contrast, gold hovered around $3,400 for nearly two months before mid-August when Bitcoin marked a record high, coinciding with increasing global trade tensions as the temporary tariff reduction on imports from China expired.

Favorable Economic Indicators

Recent US Personal Consumption Expenditures Price Index data indicate a 2.9% increase from August, aligning with analyst forecasts. With inflation concerns fading, confidence builds that the Fed will continue on the trajectory of interest rate reductions.

Traders who purchased Bitcoin above $120,000 in August might feel let down as tariffs did not adversely impact the US trade balance or retail sales in the short term. The rise in Bitcoin throughout October has paralleled a 16% increase in gold prices over six weeks, with data from the World Gold Council indicating ongoing accumulation by central banks.

Current Fed Rate Predictions Implied Fed rate odds by January 2026. Source: CME FedWatch

By October, the probability of the Fed lowering rates to 3.50% or less by January 2024 climbed to 40%, compared to 18% in mid-August. Despite investors welcoming the trend in inflation, persistent weak labor conditions might challenge the recent all-time high of the S&P 500, especially amid concerns about the US government shutdown.

On Monday, Vice Chair Philip Jefferson voiced worries regarding the labor landscape, suggesting it could face pressure without additional support. He blamed these challenges on US President Donald Trump’s policies, asserting that the ramifications will become more evident in the coming months.

Changing Market Dynamics

Leading up to Bitcoin’s peak in mid-August, options data illustrated a balanced expectation for price movements. Today, the sentiment indicates a caution towards potential downtrends, with put options trading at a premium over call options.

BTC Options Delta Skew Deribit 30-day BTC options delta skew. Source: Laevitas.ch

CoinGlass reports over $313 million in liquidated leveraged short positions just recently, validating that the unexpected rally past $120,000 has left markets unprepared, potentially curbing immediate profit-taking if bullish trends persist.

A significant factor in alleviating near-term concerns was OpenAI’s record-setting share sale, achieving a valuation of $500 billion, amidst scrutiny concerning AI sector regulations due to US export rules on advanced chips to China.

As confidence builds regarding forthcoming interest rate cuts in the US and diminishing fears of stock market corrections, Bitcoin’s trajectory toward $125,000 and above looks increasingly likely, while gold’s stability underscores an emerging shift of traders towards alternatives over conventional bond and stock markets.

This article is meant for informational purposes and should not be construed as investment advice.