Bitcoin's Journey Toward $112K: Four Critical Factors to Watch

Bitcoin's Journey Toward $112K: Four Critical Factors to Watch

Summary:
Bitcoin is currently trading below $92,000, having dropped 22% over the past month. However, there are signs that it could recover soon, driven by factors such as government monetary policies, regulatory changes, and the state of Bitcoin derivatives. Understanding these elements is essential for predicting Bitcoin’s next price movements, especially as it aims to retest the $112,000 mark.

Key Takeaways:

Bitcoin's performance is impacted by derivatives and cautious interest rate forecasts, but improving liquidity enhances its potential for price increases.
Easing regulations and MSCI's evaluation of firms heavily invested in Bitcoin may boost investor sentiment, supporting a positive medium-term outlook for the cryptocurrency.
Short-term challenges could lay the groundwork for a more sustainable Bitcoin rally, with four main catalysts influencing its price trajectory.

Bitcoin has been struggling below $92,000 since last Thursday and has declined by 22% in the last month. This scenario, however, may change shortly. Optimists expect various governments to increase their money supply to aid economic recovery and manage rising fiscal deficits. Conversely, pessimists point to weaker labor market indicators and growing worries about trends in artificial intelligence investments.

Both perspectives could have merit, and this recent period of market weakness may create the groundwork for a robust Bitcoin rally. There are four main factors that will impact how swiftly Bitcoin can reach the $112,000 level that it saw about four weeks ago.

iShares TIPS Bond ETF vs. Bitcoin/USD
Source: TradingView / Cointelegraph

The iShares TIPS Bond ETF, which tracks US Treasury Inflation-Protected Securities, has resumed its upward path after hitting support at 110.50 on Thursday. This ETF typically rises when investors expect higher inflation, a context often beneficial for Bitcoin as traders look for alternative inflation hedges. Data from the CME FedWatch Tool indicates that traders believe there is a 78% chance that the US Federal Reserve (Fed) will keep interest rates at 3.50% or higher until January 26, a rise from 47% on October 24. Lower interest rates generally favor companies that rely on borrowing and can stimulate demand for consumer credit.

Consumer loans issued by commercial banks
Source: Federal Reserve

The uncertainty around the prolonged US government funding shutdown, which continued until November 12, may lead the Fed to maintain current rates at its December meeting. Traders are keenly awaiting the US Bureau of Labor Statistics' November jobs report, set for December 16, and the Fed's preferred measure of inflation, the November core Personal Consumption Expenditures (PCE) index, scheduled for release on December 26.

Will the US Federal Reserve Ignite Bitcoin's Next Rally?

A notable shift could happen in the first half of 2026. US Fed Chair Jerome Powell's term will end in May, and President Donald Trump has expressed a preference for a successor who supports a more lenient monetary policy. While no nomination date has been confirmed, the selection process typically takes several months, involving Senate hearings and votes.

Bloomberg has reported that US regulators are finalizing a rule to reduce capital requirements for the largest banks by January 1, 2026. These developments could act as catalysts for riskier assets, including Bitcoin, especially as the Trump administration indicates intentions to spur economic growth through increased government borrowing. This includes the proposed "One Big Beautiful Bill Act," launched in July.

Apart from macroeconomic factors, two important developments within the Bitcoin sector could influence its journey past the $100,000 milestone. In October, the MSCI Index announced it was consulting with investors about potentially excluding firms focused primarily on accumulating Bitcoin and other digital assets. The final decision is expected on January 15.

Passive investment funds associated with Strategy (MSTR US) represent nearly $9 billion in market exposure, according to Bloomberg. Michael Saylor, founder and chairman of MSTR, emphasized on Friday that “Strategy is not a fund, not a trust, and not a holding company. We’re a publicly traded operating company with a $500 million software business and a unique treasury strategy.”

Bitcoin 30-day options delta skew
Source: laevitas.ch

Over the past four weeks, Bitcoin derivatives have encountered ongoing pressure, indicated by a 10% premium for put (sell) options compared to equivalent call (buy) contracts. With the significant $22.6 billion Bitcoin options expiry approaching on December 26, traders are likely to wait for the pricing skew to move closer to a neutral range of 5% before regaining confidence.

In summary, while the pathway to $112,000 seems possible for Bitcoin, it appears that such a move is more likely to occur in the first half of 2026.