Q4 is just around the corner, and the crypto market is already discussing whether it will be bullish or bearish.
Notably, the bears have quite a compelling case. The market has started reacting to the recent 25 bps hike by the Federal Reserve.
Goldman Sachs has already priced in another rate hike at the October FOMC, and there are reasons to believe that this hawkish scenario could play out.
Why is crypto’s Q4 outlook turning bearish?
Following the Fed’s decision, the U.S. 2-year Treasury yield climbed to 4.734%, its highest level in 26 months.
Further increases could tighten financial conditions, especially with U.S. government debt exceeding $30 trillion.
The bigger signal, however, is coming from the 10-year Treasury yield.
Based on analysis from the Kobeissi Letter, a move above the 6% threshold next year can not be ruled out. The recent breakout above 5% is a crucial technical signal, suggesting that rising yields could continue to put pressure on liquidity and in turn on risk assets such as crypto.
Meanwhile, the U.S. Dollar Index crossed 100 for the first time in over four weeks. A stronger dollar could tighten global liquidity and reduce demand for risk assets, including crypto.
Combined with rate-hike expectations and rising yields, the broader macro setup is starting to weigh on crypto’s September ROI.
If this trend continues, could crypto’s October setup suggest that the bear market is far from over?
Speculation builds around crypto as Q4 approaches
The market seems to bet heavily on the rally in September to set the tone for early Q4.
From a technical perspective, Bitcoin is down more than 2% for the month after recording 30%+ gains for both July and August. Traders are hoping to see a green close in the month of September to mark the end of the bear phase and the beginning of the new bull run, which should set a strong tone for the historically bullish month of October for risk assets.
Bitcoin’s key metrics highlight that traders may already be positioning for this move. Following the FOMC announcement, Bitcoin’s Open Interest jumped by approximately 10k, pointing to fresh speculative capital entering the market. As such, despite the macro challenges, traders seem to believe that the odds of a rally in October are still worth betting on.
This is where Glassnode’s latest data becomes relevant.
As can be seen in the chart above, Bitcoin’s [$BTC] short-term holder cost basis is currently at the crucial level of about $70k. If $BTC breaks below this level, these holders could move into unrealized losses, increasing the risk of selling pressure. This makes $70k a key near-term support level. However, with the macro FUD still prevailing and leverage beginning to pick up, a breakdown below this level cannot be ruled out.
If that happens, liquidations could add further downside pressure. In this context, crypto’s broader October setup is tilting more on the bearish side for now.
Final Summary
- Rising yields and rate-hike fears are putting pressure on crypto.
- Bitcoin’s $70k support is key, as a break below it could trigger more selling.
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