Surging Bitcoin Price Today: What’s the Reason?

Bitcoin’s price saw a 3.2% increase on January 26th, ending a three-day struggle to break the $40,000 resistance. This unexpected rally happened shortly after the monthly BTC options expiry, where the instruments set to profit if the price remained below $40,000 saw a balanced outcome between buy and sell options. The price of Bitcoin was also positively affected by reduced inflationary pressure in the US. Macroeconomic conditions improved as the US Commerce Department’s price index rose by 2.9% in December 2023, indicating a better chance for the US Federal Reserve to curb inflation without causing a recession. The US GDP grew by 3.3% in the last quarter of 2023, supporting the Fed’s strategy. The size of the US federal debt interest payment also justifies an improvement in Bitcoin’s price potential, as it is expected to surpass $1.7 trillion by 2027. This situation indicates that the US dollar will continue to lose value, either through government liquidity injections or interest rate cuts. The question is, which sector or asset will benefit the most when the interest rates are cut? Typically, the stock market benefits as it reduces capital costs for listed companies and makes fixed-income investments less attractive. Bitcoin has recently received positive coverage from the traditional finance industry, with outflows from the Grayscale GBTC spot Bitcoin ETF estimated to have peaked. This means that the downward pressure on Bitcoin from that channel is likely to decrease. Spot Bitcoin ETFs had a positive 10-day net total flow of $744 million, which suggests that other contenders like BlackRock, Fidelity, Ark 21 Shares, and Bitwise will help balance the situation even if the outflow from Grayscale GBTC continues. Another reason for optimism among Bitcoin investors is the reduced transaction costs on the network. Previously, transactions above 30 sat/vB were stuck in the ‘mempool’ due to high demand, causing time-sensitive transactions to pay as much as $2.50 or more. Starting from January 23rd, the network became less congested. These factors, along with improved macroeconomic conditions and reduced risks from Grayscale GBTC outflows, are the likely reasons for Bitcoin’s recent rally above $42,000.