$100K BTC Price Depends On Fed Policy Pivot, AI Debt Bubble

Key takeaways:

The Federal Reserve’s move away from quantitative tightening and rate cuts creates liquidity, making fixed-income assets less attractive.
Surging tech credit risks, as evidenced by high Oracle debt protection costs, prompt investors to seek alternative, scarcer assets like Bitcoin.

Bitcoin (BTC) fell 4% on Friday to a low of $88,140, extending its decline to 19% since November. Meanwhile, the S&P 500 is now less than 1% from its all-time high. This sharp divergence may soon close with a strong upside move for Bitcoin, fueled by a major shift in central bank policy and growing credit stress.

This perfect storm has the potential to propel Bitcoin to the psychologically critical $100,000 barrier before the year concludes.

Fixed income’s fading appeal and tech credit scare could fuel Bitcoin rally

The most critical factor is the Federal Reserve’s pivot from quantitative tightening, a process of draining liquidity from the financial system by allowing the maturity of Treasury securities and mortgage-backed securities without reinvesting the proceeds. The Fed officially halted this program on Dec. 1.

Total assets of the Federal Reserve, USD. Source: TradingView

Over the last six months, the Fed’s balance sheet contracted by $136 billion, removing a significant amount of cash. The market is aggressively anticipating the next phase based on lower interest rates. According to CME FedWatch Tool data, bond futures assign an 87% probability to a rate cut at the Wednesday Fed meeting, with expectations fully pricing in three cuts by September 2026.

US Money Market fund assets, USD trillion. Source: Bloomberg

Lower interest rates and increasing systemic liquidity fundamentally erode the demand for fixed-income assets. As the Fed cuts rates, the returns on new bond issuances also decline, making them less attractive to institutional funds. According to Bloomberg, there is now a record-high $8 trillion in US money-market funds.

Credit Default Swaps for Oracle’s debt. Source: Bloomberg

The potential capital rotation is further incentivized by structural risks emerging in the equity markets, especially in the tech sector. The cost of protecting Oracle’s (ORCL) debt against default using Credit Default Swaps has surged to its highest level since 2009. Oracle had $105 billion of debt, including leases, as of the end of August.

Related: US investors consider crypto less as risk-taking drops–FINRA study

Oracle is counting on hundreds of billions of dollars in revenues from OpenAI, according to Bloomberg. The company is the largest debt issuer outside of the banking industry in the Bloomberg US Corporate Bond Index. “Investors are becoming increasingly concerned about how much more supply may be on the horizon,” according to a Citigroup credit strategy report.

Bank of America says steady Fed rates increase economic slowdown odds

Investors fear this high-stakes push, which includes US President Donald Trump’s Genesis Mission, a national initiative aimed at doubling US scientific productivity through the use of AI and nuclear energy. The surge in demand for debt protection signals extreme market unease regarding the immense debt-fueled spending, which may not yield adequate returns.

Bank of America strategist Michael Hartnett argued that if the Fed sends a message of steady interest rates, the odds of a wider economic slowdown significantly increase. This uncertainty, combined with a desire for growth less dependent on stimulus, reinforces the appeal of Bitcoin’s scarcity as institutional capital looks to de-risk its traditional tech exposures.

The Fed’s official end to its liquidity drain program and the market’s aggressive pricing of interest rate cuts provide a monumental tailwind. With tech credit risks surging due to massive AI-related debt, capital is structurally primed to rotate into scarce assets. This convergence establishes a clear path for BTC to breach the $100,000 milestone over the next couple of months.

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