By Hannah Lang, Gertrude Chavez-Dreyfuss and Medha Singh
Sept 14 (Reuters) - Bitcoin bulls are back after months of gloom, but a Federal Reserve rate decision this week will test that optimism, even as a key Senate vote on crypto legislation could provide a surprise tailwind.
After languishing for months at two-year lows of around $60,000, the world's largest cryptocurrency in late August staged a rebound past $70,000 as surging Treasury yields briefly retreated and broader sentiment improved. The
rally marked a sharp turnaround for bitcoin, which had slumped roughly 50% from its October 2025 peak of above $126,000.
Although traders are assigning almost no chance of bitcoin rescaling that peak, the bitcoin options market has flipped bullish for the first time in 12 months, according to data from options platform Derive.xyz, with many traders betting bitcoin could hit $80,000 or higher by December.
At first glance, that optimism seems misguided: tensions in the Middle East remain high, the odds of the U.S. Senate passing a key crypto bill that could boost adoption have dimmed, and inflation has remained elevated, raising expectations of a Fed rate hike which usually sucks liquidity out of such risk assets.
Despite those headwinds, many investors believe bitcoin, a notoriously volatile asset, has hit its lowest ebb. With traders assigning an 85% likelihood of a rate hike on Wednesday following hot inflation data, and with long-end bond yields nearing 5%, creating more competition for capital, the question now is whether bitcoin can sustain momentum, said analysts.
"BTC was in oversold territory for some time," said Matthew Dibb, chief operating officer of Singapore-based crypto investment manager Stack Funds. "Short-term traders are looking towards inflation figures and rate rises as short term threats."
OPTIONS TRADERS SKEW BULLISH
The 25-delta skew, which compares demand for bullish call options against protective put options, turned positive on August 20, said Sean Dawson, head of research at Derive.xyz. That implies there is a premium to buying upside calls, he said.
"That is a bit bullish," he added. Dawson attributed the improved mood to a general rotation back into crypto after the blockbuster SpaceX IPO sucked capital out of the market, while Korean equities, also attractive to speculative investors, have cooled.
Open interest for the December 25 expiry is clustered at the $80,000 strike, with about $710 million in notional value, and at $100,000, with roughly $530 million, according to Derive.xyz.
Bitcoin exchange-traded funds, which have institutional as well as retail investors, have also shown signs of renewed demand, with inflows reaching nearly $2 billion the week of August 17, after eight straight weeks of outflows in May and June.
"People in crypto here are actually kind of now looking through all the bad and saying, 'Well, what's the upside?'” said Jim Ferraioli, head of crypto research at Charles Schwab.
An indication from Fed Chair Kevin Warsh that a rate hike would be a one-off rather than the start of a hiking cycle could be one such upside surprise, Ferraioli said. Warsh has so far resisted committing the Fed to any set rate path, analysts said.
Still, it is unlikely that a hike of any kind would be immediately seen as a positive for bitcoin and other speculative assets, said Joseph Edwards, an independent financial researcher. "It would likely put a damper on the recent rally."
While rising Treasury yields are typically a headwind for risk assets, some bitcoin bulls argue that the Treasury's increased buybacks, which investors see as a bid to tamp down yields, could stoke concerns about dollar debasement. That would in turn boost demand for scarce assets such as bitcoin.
"We think bitcoin's structural demand picture is improving, even as the near-term setup has become more vulnerable to macro and positioning-related volatility. The debasement trade appears to be returning," said Brian Vieten, senior analyst at brokerage and wealth management firm Siebert Financial.
TRUMP ADMINISTRATION CRYPTO POLICY IN FOCUS
Under President Donald Trump's crypto-friendly administration, policy surprises offer another potential bitcoin boost.
The market has likely priced in that the U.S. Clarity Act, a key crypto bill, will not pass amid delays and continued opposition from many senators, said Can-Luca Köymen, investment strategist at Switzerland-based digital asset bank Sygnum.
The bill would address what the industry says is legal ambiguity by defining which tokens qualify as securities versus commodities, potentially boosting adoption. The U.S. Senate is set to take a procedural vote on the bill on Tuesday, which could ultimately determine its fate.
"If the bill unexpectedly passes, I think that would be a fundamental catalyst to the upside," said Ferraioli.
(Reporting by Hannah Lang and Gertrude Chavez-Dreyfuss in New York and Medha Singh in Bengaluru; Additional reporting by Elizabeth Howcroft in Paris; Editing by Michelle Price and Matthew Lewis)
