Bitcoin lost support at $64,000 over the weekend, once again waiting for market opportunities. As the Ethereum ETF market did not emerge in May, the overall market sentiment is relatively flat. Most investors are focused on the earnings week of US technology stocks. AI-related stocks have always been the focus of capital speculation, while cryptocurrencies were somewhat neglected last week, which is also reflected in the net flow of funds into Bitcoin ETFs.
Recently, crypto analysts have observed a gradual slowdown in the inflow of funds into Bitcoin spot ETFs, causing concerns among many investors about whether the buying pressure for Bitcoin will decrease due to the weakening of ETFs, leading to a decline in Bitcoin prices. This is especially true for the IBIT issued by BlackRock, which is currently the largest Bitcoin ETF in the market. It ended the continuous net inflow for 71 days last week and turned into a net flow of 0.
This may mean that the buying pressure or growth of Bitcoin spot ETFs is not as strong as in previous months. Considering that Bitcoin has already halved and mining revenue has decreased, operators need to sell coins more frequently to maintain operations. In addition, the majority of Bitcoin holders have unrealized profits averaging over 100%, making it easier for them to sell in order to secure their profits. Analysts have put forward various opinions on the possibility of a short-term price decline for Bitcoin.
Recent reports from CryptoQuant also indicate that the net inflow of funds into cryptocurrency exchanges continues to increase, indicating that users are transferring cryptocurrencies to exchanges, possibly for selling or fund adjustments. The analyst team believes that whales are realizing their profits, while other reports warn that continued selling by long-term investors may impact market prices.
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When the funds flow into Bitcoin ETFs slows down and long-term Bitcoin investors liquidate their positions, there will be greater pressure on Bitcoin prices in the short term. However, these are only weekly data, and often only short-term phenomena that last for a few days. The subsequent trend will still be determined by other factors. If we extend the time frame, the situation should not be so bad.
Sources: MICA RESEARCH
A. April 22: Bitcoin Completes Halving, Price Increases Slightly
The Bitcoin block completed the reward halving on April 20, with a relatively flat process and no significant price fluctuations as expected by analysts. The Bitcoin price only climbed from $63,000 to $65,000, with a small change in volatility.
Analysts originally believed that after the halving of Bitcoin, there would be two scenarios. The first is that with the halving of supply, investors would be optimistic about its scarcity, and the price would rise again. The second is that miners, due to reduced income, would have higher cash flow requirements and would tend to sell their Bitcoin inventory for cash flow, leading to a sharp decline in the price. Obviously, these scenarios have already played out.
The next move will depend on the opening of the US stock market. The growth of Bitcoin ETFs is still the main driving force behind the current Bitcoin price. It remains to be seen whether funds will continue to flow into Bitcoin ETFs to offset the impact of the Federal Reserve’s high interest rate policy.
B. April 23: Glassnode: Investors Should Lower Profit Expectations After Bitcoin’s Fourth Halving
Chain analysis company Glassnode has issued a new analysis report stating that investors should be more cautious about the price trend after Bitcoin’s fourth halving and estimated that the potential return on investment will be lower than the market’s previous expectations. It advises investors not to rely on the trend of skyrocketing prices after the past three halvings to respond to the current investment trend.
The reason is that this cycle is different from the past three cycles. Currently, investors’ unrealized profits are +126%, much higher than the previous three times. Investors are likely to sell Bitcoin and cause a market decline when faced with unstable events. The high unrealized profits are the biggest risk and concern in this halving cycle, but the company did not state the potential target price for Bitcoin.
On the other hand, the report also pointed out that the new supply rate of Bitcoin has reached a new low of 0.83%, the first time it is lower than gold’s 2.3%. Bitcoin’s scarcity is higher than before, and in the face of inflation and demand for non-US dollar hedging, we are optimistic that Bitcoin will retest $70,000.
C. April 25: SEC Delays Ethereum Spot ETF Listing Decision until June
The U.S. Securities and Exchange Commission (SEC) has announced an update regarding the Ethereum spot ETF applications from BlackRock and Grayscale, stating that the agency needs more time to review the listing of Ethereum spot ETFs. The original decision date of April 26 has been postponed by 60 days to June 23. This delay was expected by the market and did not have any impact on the price of Ethereum, which is currently priced at $3,200.
In addition, Grayscale also updated its application yesterday and added Mini ETH Trust, a low-cost entry-level ETF product. Learning from the painful lesson of the outflow of funds from GBTC to ETFs, Grayscale plans to prepare a solution before converting to ETH, addressing concerns about high fees for flagship funds and reducing the risk of fund outflows.
Currently, Bitcoin has completed its halving, and the market is contemplating the next hot topic. The Ethereum spot ETF is quietly heating up in the community, but analysts are also concerned about the securities characteristics caused by Proof of Stake (POS). The market’s view is mixed, and there is no consensus formed yet. During this period, the market volatility is likely to follow the performance of US technology stocks and is unlikely to have an independent trend.
The expectation of tightening is too strong, and a reversal of interest rate expectations will be the next turning point.
Firstly, Bitcoin and gold are still popular among investors in emerging countries, and a lot of funds are entering Bitcoin through ETF channels. We believe that this trend will continue for some time, but the growth rate is currently declining, and there has not been any outflow of funds. Bitcoin ETFs still have tremendous growth potential in the future. For example, Hong Kong will provide Bitcoin ETF products to investors in the future, and other Asian countries are expected to follow suit gradually. However, these are long-term developments.
The key to the medium-term reversal will be the direction of the interest rate policy of the US Federal Reserve. Investors currently believe that the Fed will continue to tighten its policy, causing the US dollar to strengthen. Emerging countries use gold or Bitcoin to hedge against the economic pressure and risks of a soaring US dollar. However, don’t forget that Bitcoin prices are also affected by the Fed’s interest rate policy. Recently, Bitcoin has become too strong due to buying pressure in sync with gold, and the price has not been suppressed too much by high interest rates.
But when the Fed cuts rates, the price of Bitcoin still has the potential to rise. Considering the extreme pessimism in the market regarding US interest rates, most people believe that the Fed may only cut rates once this year or not at all. Investors’ pessimism is nearing an extreme level. CME rate futures show a 42% probability of remaining unchanged in September, 44% of cutting rates by one notch, and 14% of cutting rates by two notches. This is quite different from the previous expectation of a rate cut in June.
This will be an excellent turning point, and as long as there is a slight indication of a slowdown in the inflation rate, the market will begin to reverse the strength of the US dollar, driving the price of Bitcoin to rise. There will be a wave of market investors speculating that the Fed may cut rates two to three times this year, thus alleviating market expectations of rate hikes. Finally, risk assets may attract another surge of investment.
The chances of such a reversal point occurring are increasing, which will help Bitcoin reclaim the $70,000 level. US technology stocks have returned to historical highs due to strong earnings performance, and AI concept stocks have successfully boosted investors’ confidence in an upward trend. Funds are flowing back into the market, and the cryptocurrency market is also expected to benefit.
From the current perspective, market liquidity is currently quite abundant, and investors do not need to worry too much about prices. At the same time, excessive leverage in the market has improved. Retail traders and professional traders are no longer speculating on prices through a large number of contracts. The market has gradually returned to normalcy.
It is worth noting that the industry is already preparing for the listing of Ethereum spot ETFs. However, the U.S. Securities and Exchange Commission (SEC) may reject the listing approval of Ethereum spot ETFs due to concerns about selling securities. It is widely expected that the ETF will not be approved in May this year. To eliminate the security concerns of Ethereum and expedite the listing progress of ETFs, ConsenSys directly filed a lawsuit against the SEC last week, requesting the court to rule that Ethereum is a “non-security” digital asset. This case will take a long time to reach a conclusion, and Ethereum may only follow Bitcoin in the short term and not have its independent market trend.
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