Bitcoin fails to surpass $90,000…Fed- and Japan-origin risks overlap

Bitcoin (BTC) has repeatedly failed over the past month to settle at the $92,000 level and has not escaped a bearish trend. Unlike the U.S. stock market, which continues a high-flying run near record highs, Bitcoin has fallen sharply from its highs, and the decoupling (desynchronization) phenomenon with traditional assets is becoming pronounced.

As of the 20th, Bitcoin remains in the $88,000 range, about 30% down from the October high of $126,200 recorded last year. Over the same period, the S&P 500 index closed trading about 1.3% below its record high. Some point to an artificial intelligence (AI) bubble as a cause of Bitcoin's decline, but given the overall strength in equities, that explanation is not very convincing. Market analysis rather favors the view that risk-aversion is strengthening and funds are moving into safe assets such as gold.

The biggest factor holding back Bitcoin is seen as the U.S. Federal Reserve (Fed)'s policy of liquidity reduction. The Fed has absorbed market liquidity for most of this year through balance-sheet reduction. Although signs of employment slowdown emerged in December and the policy stance has eased somewhat, caution in financial markets has not been resolved.

Signs of crisis in the real economy are also clear. Target on the 9th lowered its fourth-quarter earnings outlook, and Macy's warned of margin pressure from inflation. Nike also announced a decline in quarterly sales on the 18th, and its stock plunged 10%. Historically, a contraction in consumption has been negative for high-risk assets such as Bitcoin.

Economic uncertainty has grown further as a 43-day U.S. government shutdown disrupted the release of November employment and inflation data. Accordingly, the probability of a rate cut at the Federal Open Market Committee (FOMC) meeting on January 28 next year fell from 24% last week to 22%. The U.S. 10-year Treasury yield remains around 4.15%, showing downward rigidity.

Risks originating in Japan are also a factor. Japan's 10-year government bond yield surpassed 2% for the first time since 1999, and bond demand has plunged. With Japan's third-quarter gross domestic product (GDP) growth rate at -2.3% year-on-year and economic fundamentals shaken, the risk of global market spillover is increasing.

Foreign outlet Cointelegraph said, "Investor risk aversion has reached extremes due to global growth slowdown and a contraction in the U.S. labor market," and "it will be difficult for Bitcoin to function as an inflation hedge (risk avoidance) for the time being."