On Tuesday (October 15), after breaking through $66,000, Bitcoin fell slightly to $65,500, and the market fell into a battle between long and short. The impact of China's quantitative easing hopes has laid the foundation for Bitcoin's "October Uptober". China is reported to issue 6 trillion yuan of bonds to support the stimulus plan. The country has invested about 20 trillion yuan in two years to cope with the global financial crisis.
Bloomberg reported on Tuesday, citing Chinese media Caixin, that China may raise 6 trillion yuan, or about 846 billion U.S. dollars, by issuing ultra-long special government bonds over the next three years as part of its efforts to boost the economy.
Well-known financial blog ZeroHedge pointed out that this triggered discussions about China's inevitable implementation of quantitative easing to maintain bond yields, and the discussion of quantitative easing caused stocks and cryptocurrencies to surge.
However, as Goldman Sachs points out, 6 trillion yuan is a good number and a good start, but it is nowhere near what they have done in the past. Specifically, China invested about 20 trillion yuan over two years to respond to the global financial crisis.
Bitcoin prices surged on hopes of quantitative easing in China, breaking through $66,000, the highest level since late September.
Forbes reported that the price of Bitcoin has surpassed $65,000, climbing to its highest level since September, while Michael Saylor, founder of U.S.-listed giant MicroStrategy, revealed the company's "ultimate Bitcoin goal" of reaching a market value of $100 trillion.
Now, with a JPMorgan analyst releasing a surprising Bitcoin price prediction, traders are betting that the rotation into Bitcoin and cryptocurrencies from Chinese stocks will continue.
Caroline Mauron, co-founder of crypto derivatives liquidity provider Orbit Markets, said: "The market may view the disappointing Chinese stimulus plan as positive news for Bitcoin, as it is known that the previous capital rotation from Bitcoin to Chinese stocks has put pressure on cryptocurrency prices."
On Saturday, Chinese Finance Minister Lan Phoan pledged a "substantially increased" debt to revive the country's stagnant economy, but failed to give a specific figure for the overall size of the stimulus package.
"We didn't get a lot of stimulus over the weekend, but we weren't expecting much anyway and I still think there will be more fiscal stimulus this year and in the next few years," Mohit Kumar, chief financial economist for Europe at Jefferies, told Reuters.
Earlier this month, analysts David Brickell and Chris Mill told traders to “expect fireworks,” writing in their newsletter that they see bitcoin prices hitting new all-time highs thanks to a “tsunami of liquidity” from China and rate cuts from the Federal Reserve.
However, some market watchers worry that a lack of details from Chinese officials could mean the market rebound is short-lived.
“The devil is always in the details and China has once again obscured its intentions to accelerate economic growth,” Russ Mould, investment director at AJ Bell, said in emailed comments.
He continued: "Investors had hoped that China's Ministry of Finance meeting on Saturday would provide all the answers; but the content of the meeting was too high-level to maintain market optimism. Although Chinese stocks continued to rise on Monday, the gains have slowed and some investors may now wonder whether we have seen the best stage of the rally."
Bitcoin Technical Analysis
CoinTelegraph noted that most of Bitcoin’s gains over the past seven months have been capped by overhead resistance levels, most recently the $65,000-66,000 level, with the price yet to secure a daily close above that level.
Monday’s price rally puts Bitcoin in a similar position, with the trendline of a descending channel briefly breached, but it remains uncertain whether Bitcoin will close firmly above the channel’s resistance level on Tuesday.
Similar to previous rallies, this price breakout was driven in part by the futures market, with short traders forced to buy, an activity easily identified by a surge in funding rate and open interest as Bitcoin rallied to $66,300.
JJ, head of crypto options and derivatives at HighStrike, mentioned: “Bitcoin surged as it broke through the 200-day moving average, reigniting the interest of call option buyers in the options market. As Kelly Greer of Galaxy Digital said, the most popular of these call options are the 75K-100K calls for the fourth quarter of this year.”
“Option junkies hold 75k-100k calls (red bars). Mostly December, with some October and November. Open interest on these calls on Deribit is around 70k. Buying picked up last weekend when sellers slowed, visible in October implied volatility and skew.”
J explained that in his view, “there are a number of factors driving the bullish price action, the most popular of which appear to be former US President and Republican presidential candidate Donald Trump’s rising Polymarket odds to their highest level since Bitcoin last hit $70,000 in July, and MicroStrategy’s recent breakout above its New Year’s high.”
When asked if Monday’s rally above $66,000 represented a definitive change in trend, JJ warned that resistance above the September highs still remains as the Coinbase order book is stacked with a fair amount of orders above that high.
“While all signs point to a fourth quarter for Bitcoin to break out to new all-time highs, participants should still expect the market to be range-bound and liquidity to flow downward as long as these selling barriers remain.”
