After months of lackluster performance, Bitcoin bulls have made a comeback, but this week's Federal Reserve rate decision will put that optimism to the test. Meanwhile, a crucial Senate vote on cryptocurrency legislation could provide an unexpected tailwind for the digital asset market.
The largest cryptocurrency broke above the $70,000 mark in late August after hovering near two-year lows around $60,000 for several months. This surge coincided with a temporary pullback in the sharp rise of Treasury yields, which lifted overall market sentiment. The rebound marks a sharp reversal for Bitcoin, which had fallen roughly 50% from its peak of over $126,000 in October 2025.
Although traders are not expecting a return to that all-time high, options data from Derive.xyz shows that the Bitcoin options market has turned bullish for the first time in a year. Many traders are betting that Bitcoin could reach $80,000 or higher by December. On the surface, this optimism seems misplaced given ongoing tensions in the Middle East and fading prospects for the Senate to pass a key crypto bill aimed at boosting adoption. Inflation remains elevated, and expectations for a Fed rate hike—which typically drains liquidity from risk assets—are growing.
Despite these headwinds, many investors believe Bitcoin, known for its high volatility, has already bottomed out. Analysts note that following hot inflation data, traders see an 85% probability of a rate hike on Wednesday, with long-term Treasury yields near 5%. The question now is whether Bitcoin can maintain its momentum amid increased competition for capital.
"Bitcoin has been in oversold territory for some time," said Matthew Dibb, Chief Operating Officer at Singapore-based crypto investment firm Stack Funds. "Short-term traders are viewing the inflation data and rate hike as short-term threats."
Options Traders Shift to Bullish Stance
Sean Dawson, Head of Research at Derive.xyz, noted that the 25-delta skew comparing call option demand to protective put option demand turned positive on August 20. This indicates a premium for purchasing upside call options. "This is somewhat bullish," he added. Dawson attributes the improved sentiment to capital returning to the crypto market after the massive SpaceX IPO drew funds away, while the South Korean stock market, which also attracted speculative investors, has cooled off.
According to Derive.xyz, open interest for the December 25 expiry is concentrated at the $80,000 strike price, with a notional value of approximately $710 million, while the $100,000 strike price holds about $530 million. Bitcoin ETFs are also showing signs of renewed demand. In the week of August 17, inflows approached $2 billion, following eight consecutive weeks of outflows in May and June.
"Crypto enthusiasts are now starting to look through all the bad news and ask, 'What's the upside?'" said Jim Ferraioli, Crypto Research Director at Charles Schwab. Ferraioli suggests that Fed Chair Kevin Warsh hinting that a rate hike would be a one-off, rather than the start of a tightening cycle, could be one of the upside surprises. Analysts note that Warsh has so far refused to commit to any predetermined rate path.
However, independent financial researcher Joseph Edwards believes any rate hike is unlikely to be immediately seen as positive for Bitcoin and other speculative assets. "It could dampen the recent rally," he said.
While rising Treasury yields are typically a headwind for risk assets, some Bitcoin bulls argue that increased Treasury buybacks by the U.S. Treasury Department—seen by investors as a move to lower yields—could trigger concerns about dollar depreciation. This, in turn, could boost demand for scarce assets like Bitcoin. "We believe the structural demand outlook for Bitcoin is improving, though the near-term landscape is more susceptible to macro and positioning-related volatility. The devaluation trade appears to be making a comeback," said Brian Vieten, Senior Analyst at brokerage and wealth management firm Siebert Financial.
Crypto Policy Under Trump Administration Takes Center Stage
Under President Trump's crypto-friendly administration, policy surprises provide another potential boost for Bitcoin. Can-Luca Köymen, Investment Strategist at Swiss digital asset bank Sygnum, said the market may have already priced in the failure of the U.S. Clear Act due to delays and ongoing opposition from many senators. The bill aims to resolve what the industry calls legal ambiguity by defining which tokens are securities and which are commodities, potentially boosting adoption. The Senate will hold a procedural vote on the bill Tuesday, which could ultimately determine its fate.
"If the bill passes unexpectedly, I believe that would be a fundamental upside catalyst," Ferraioli said.
Comments