Bitcoin pulls back as reduced US Treasury term premium weighs on sentiment, says Standard Chartered analyst

Bitcoin has faced a sharp correction from its all-time high of over $99,000 on Friday, dropping by over 3% in the past 24 hours. Standard Chartered Global Head of Digital Assets Research Geoff Kendrick pointed to several factors driving this retracement, including shifts in the U.S. Treasury market and upcoming monthly options expirations.

Kendrick attributed the recent market turbulence, including bitcoin's decline and a rally in long-term U.S. Treasury bonds, to a reduction in the term premium for U.S. Treasurys. The term premium is the additional yield investors demand for holding long-term bonds instead of rolling over shorter-term bonds.

The Standard Chartered analyst said that since bitcoin is often viewed as a hedge against instability in traditional financial markets, improved confidence in U.S. Treasurys might diminish bitcoin's appeal in the short term, contributing to its price decline.

"This matters for bitcoin because one of its core use is to hedge against TradFi issues, the banking sector related or Treasury related," Kendrick said in a note on Tuesday. "So lower term premium hurts bitcoin, at least temporarily."

Nonetheless, he remains optimistic about bitcoin's long-term prospects. Kendrick reiterated his projected year-end target for bitcoin of $125,000, with further growth to $200,000 by the end of 2025.

Options expiry adds to short-term pressure on bitcoin

In the meantime, another factor weighing on the price of bitcoin over the short term is the asset's monthly options expiry, set for Friday. Kendrick pointed to data from Deribit that showed 18,000 bitcoin in open interest at strike prices ranging between $85,000 and $100,000, which could limit price movement leading up to the expiry. "This often means prices get stuck as we close in on expiries," Kendrick said.

However, he said that despite the retracement, bitcoin continues to see significant demand from institutional players. Kendrick pointed out that since the U.S. election earlier this month, spot bitcoin exchange-traded funds (ETFs) have accumulated approximately 77,000 bitcoin, while MicroStrategy (MSTR) has purchased an additional 134,000 bitcoin.

"MicroStrategy's buying shows no signs of slowing, and they are unlikely to sell, however, the average purchase price for ETFs and MSTR since the election stands at $88,700," said Kendrick. "This could act as a short-term floor, with bitcoin potentially consolidating in the $85,000 to $88,700 range before resuming its upward trajectory."