Bitcoin Tests Key Support Level Amid Market Turmoil

QCP Capital highlights a stark reversal in post-election market optimism as U.S. equities and crypto face historic sell-offs amid shifting fiscal and risk sentiments.

As U.S. equities and cryptocurrency market a historic sell-off on Thursday, sparked by a shift in fiscal and risk sentiment, QCP Capital highlighted a stark reversal of post-election optimism.

Former President Donald Trump's recent remarks further dented market mood, with the S&P 500 and Nasdaq falling 2.7% and 3.8%, respectively. This marks the largest single-day loss for the "Magnificent 7" tech stocks, amounting to over $830 billion.

Bearish sentiment at the start of the week was evident in US equities put option volumes, reaching their highest since 2020. This was driven by Trump's Fox News interview, where he downplayed recession risks and viewed a potential downturn as a necessary corrective measure.

"Perhaps unsurprisingly, given the bleak outlook and potential for a U.S. recession, we saw a strong shift in options volumes at the start of the week," QCP said in part.

"With the S&P 500 now down 10.4% from its August highs, we saw a 356% surge in put options volume versus calls on Monday," it added.

Bitcoin, often viewed as a pressure valve for risk assets, fell below the $80,000 level as investors sought put protection. However, early Asian trading showed unexpected demand for longer-tenor call options, suggesting traders are positioning for a rebound from the $75,000 support level seen pre-election.

"This shift from puts to calls amid a broader market sell-off is interesting, especially considering bitcoin’s continued correlation with broader risk asset trends," QCP said.

Despite the equity rout, 10-year Treasury yields fell roughly 60 basis points, while the U.S. dollar weakened—a combination that has historically been positive for USD-denominated risk assets like equities and crypto.

Lower yields also ease borrowing costs for the U.S. government, which needs to refinance a significant amount of debt this year.

QCP expressed concerns over Trump's proposed tax cuts and expansionary fiscal policies, which could strain deficit projections. But the firm added that current yield levels provide temporary fiscal relief, setting the stage for a complex backdrop as investors navigate policy risks and market volatility.

"Overall, it seems like macroeconomic conditions and policy developments may recalibrate market trajectories in the coming weeks," QCP concluded.