Bitcoin Rally Faces Fresh Risks From Fed, Oil, Yen And Bond Markets As Spot Demand Weakens

Bitcoin's correlation with gold is at a six-year high, according to Bitwise, suggesting investors are using it as a hedge against U.S. fiscal threats.

• According to the Coinbase premium index, weak spot demand in the U.S. suggests the rally toward $85,000 needs stronger buying support.
• Record short-term holders' gains and bearish OBV divergence make it more likely investors will take profits and push prices higher.
• Currently, Bitcoin's price depends on the upcoming September Fed rate hike, oil prices, and the yen carry trade, which could create tighter financial conditions for the asset.

Bitcoin (BTC) faces a tough test as weakening spot demand, rising profit-taking risks, and renewed macroeconomic uncertainty threaten to limit the cryptocurrency's push toward the $85,000 range. While Bitcoin is being traded as a ‘hedge’ similar to gold, analysts warn the next leg of the rally may depend on stronger buying support and Federal Reserve policy decisions in September.

The Coinbase Bitcoin Premium Index largely stayed negative through the first week of September, suggesting U.S. spot buying did not keep pace with Bitcoin's price recovery. The indicator briefly improved as Bitcoin rallied, but the recovery was not sustained and has been dropping ever since. This raises concerns that Bitcoin's move toward $85,000 may require stronger buying support, a key level many retail users are watching on Stocktwits.

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Bitcoin short-term holder (STH) whale cohort is sitting on a record $9 billion in unrealized profit, which raises the risk of near-term selling pressure, according to CryptoQuant data. Historically, these short-term holders have been quick to lock in gains when prices weakened. Even a modest pullback could therefore prompt profit-taking and add further volatility to Bitcoin's recovery.

Bitcoin Lacks Support 

Separately, crypto market analyst Ted Pillows pointed toward a bearish divergence between Bitcoin's price and on-balance volume (OBV), with the cryptocurrency making higher highs while the volume indicator was making lower highs. Simply put, Bitcoin is climbing higher, but fewer buyers are stepping in to support the move. This can be a warning sign that the rally is losing strength.

Bitcoin has increasingly traded like gold, with their correlation hitting a new six-year high, as risk concerns and renewed demand for hard assets support its recovery, said Bitwise. The cryptocurrency has rallied from the low $60,000 to around $80,000, with investors treating it as a hedge against currency debasement and concerns over U.S. fiscal sustainability.

Bitcoin’s price was trading at around $78,408, down over 1% in the last 24 hours. On Stocktwits, retail sentiment around BTC remained in the ‘neutral’ zone, accompanied by ‘normal’ chatter levels over the past day. 

Fed Policy And Oil Prices Set The Tone For Bitcoin’s Next Move

The Federal Reserve remains a binding constraint in Bitcoin's price movement as of now. So far, markets have priced in about 60% chance of a 25-basis-point Fed hike for September meeting, as per CME Fed Watch tool, after Kevin Warsh pointed to inflation risks, but Fed Governor Christopher Waller pushed back against the interpretation recent inflation data had offered. "Encouraging signs” of disinflation and Waller would be inclined to support holding rates steady if inflation readings for August confirm the trend. 

Comments from him helped to bring down the U.S. Treasury yields and supported Bitcoin's push north of $80,000. First up, whether the cryptocurrency can add to its gain will likely depend on the next inflation reading and the Fed's decision in September.

Oil prices are another factor. Brent crude oil jumped above $97 a barrel even as President Donald Trump said prices will fall “precipitously” after the Iran war. One resolution can reduce inflation expectations and support Bitcoin, while another supply-driven spike can strengthen the case for tighter monetary policy.

Yen Strength, Treasury Yields Add To Bitcoin Risks

The Japanese yen has risen to a seven-month high against the U.S. dollar, sparking speculation of a possible unwinding of the yen carry trade, according to Pillows. Such a move could also put pressure on risk assets if investors unwind their leveraged positions.

According to a CoinShares report published last week, another key catalyst remains the bond market. Concerns about the size of government issuers and U.S. debt levels have kept annual Treasury yields at around 4.7%, high. A further loss of confidence in U.S. sovereign debt could boost non-sovereign stores of value like gold and Bitcoin, although tighter financial conditions could dampen the cryptocurrency.

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