Bitcoin had a volatile week with various factors influencing its price. Firstly, on May 1st, there was a significant outflow of funds from Bitcoin ETFs. Additionally, the strong March labor wage data led to increased expectations of Fed tightening, causing Bitcoin’s price to briefly drop below $57,000. However, on Friday, there was a reversal in the market sentiment due to the release of April’s job report, which showed a cooling job market. This led to renewed hope for a Fed rate cut and a strong rebound in Bitcoin’s price, reaching $64,000 on May 5th. The market experienced significant fluctuations, and trading difficulty increased.
In our previous report, we mentioned that the US stock market had overly strong expectations of Fed tightening. Any inflation-related data that falls short of expectations could lead to a market interpretation of a looser monetary policy, driving up asset prices. The April job report, which revealed an increase of only 175,000 job opportunities instead of the expected 238,000, reversed the market’s tightening expectations. Financial media outlets started discussing the possibility of a rate cut, with even the Wall Street Journal suggesting a chance of a rate cut in July. This shift in market sentiment has brought back expectations of a looser monetary policy.
In contrast, the unexpected acceleration in wage growth in the first quarter, surpassing market expectations, was overshadowed. The interpretation of these events is now in the hands of Wall Street, and the current trend is towards a looser policy. This has benefited the cryptocurrency market, and Bitcoin quickly rebounded from $59,000 to $63,000, indicating that the “war hedging bonus” in the crypto market has ended. With the easing of tensions in the Middle East and a slowdown in central banks’ gold buying spree, cryptocurrencies have returned to following the trend of Fed interest rate policies.
Further reading:
MICA Daily | SEC accuses Robinhood’s cryptocurrency trading business of violating securities laws
Tiger Brokers launches “Virtual Asset Trading Service”: Supports 18 currencies including Bitcoin and Ethereum
Investors’ perception of the risks associated with Bitcoin ETFs is now closely tied to Fed interest rate policies. In other words, Bitcoin ETFs have once again become a key factor in determining the price of cryptocurrencies. Comparing the inflows and outflows of Bitcoin ETFs with Bitcoin’s price last week, we can see a high correlation between the two.
Existing Bitcoin ETFs are cash-settled, meaning that when there is a net outflow of funds, the fund companies have to sell Bitcoin and exchange it for fiat currency to pay investors. Now let’s discuss the current situation and short-term trends of Bitcoin ETFs.
A. April 30: Bitcoin ETF to be listed on the Australian Stock Exchange
According to Bloomberg, the Australian Securities Exchange is expected to approve the listing of Bitcoin ETFs by the end of this year. This means that Australian residents will be able to invest in Bitcoin ETFs through the domestic securities trading market. The issuers are BetaShares and DigitalX Ltd., with the former already registering the trading code for Bitcoin ETFs on the exchange. However, there is currently no official listing schedule or details from the Australian Securities Exchange.
DigitalX Ltd. CEO Lisa Wade stated that Australia is a market with great potential. It is expected that Australian residents will be willing to allocate 10% of their assets to cryptocurrencies. The Chief Investment Officer of VanEck Australia also pointed out that the AUD 2.3 trillion retirement market in Australia could be a potential buyer. These are important market foundations for fund companies to expand into the Australian market and are expected to bring broader demand for Bitcoin.
Hong Kong has also recently provided Bitcoin ETFs for the public to invest in. More and more regional markets are planning to introduce Bitcoin ETFs, including potential large markets like South Korea and Japan. Japan, in particular, has astonishing demand for cryptocurrencies due to currency devaluation. Although the growth of Bitcoin ETFs in the US market has slowed down, more regions are expected to introduce Bitcoin ETFs next year, and future growth is still expected.
B. May 1: Accelerated wage growth in the US raises market concerns ahead of the Fed interest rate decision tonight
Yesterday, the US Department of Labor announced that wage growth for US workers in the first quarter was 1.2%, with an annual growth rate of 4.2%. This indicates that the US economy is still strong and has the ability to continue wage increases or provide higher salaries to attract workers to switch jobs. However, this also means that the labor market tightening expected by the Fed has not yet arrived. After the release of this data, investors are also concerned that the Fed’s interest rate decision for this year may shift towards facing inflation pressures and initiating tightening policies again.
It is worth mentioning that the Fed will hold its FOMC interest rate decision for May tonight, and it is expected to keep interest rates unchanged. The market is more concerned about the post-meeting officials’ attitude towards current US inflation. Currently, Fed officials expect consensus for three rate cuts this year, each by 25 basis points. However, recent inflation data seems insufficient to support such a magnitude of rate cuts, and Fed officials may reconsider their stance.
External institutions have already adjusted their expectations for the Fed. CME rate futures show that traders believe there is a 42% probability of the first rate cut occurring in November. Overall, the expectations for rate cuts have diminished, but this is not closely related to cryptocurrencies. The recent pullback in gold prices and the easing of tensions in the Israeli-Middle East conflict will have a higher correlation with Bitcoin prices. Currently, Bitcoin has pulled back to the $60,000 level.
C. May 2: Fed keeps benchmark interest rates unchanged, will slow down balance sheet reduction
In the early morning, the Fed announced its latest FOMC interest rate decision, which did not surprise the market. Apart from keeping the benchmark interest rate unchanged (5.25% to 5.50%), the Federal Reserve also announced that it would slow down the pace of reducing its balance sheet, lowering the monthly cap for Treasury redemptions from $60 billion to $25 billion. The monthly cap for institutional debt and mortgage-backed securities (MBS) redemptions will remain at $35 billion, and any principal above this cap will be reinvested in Treasury securities.
These measures indicate that the Fed is gradually adopting a looser policy to avoid a hard landing of the US economy. The overall statement is not significantly different from before, with a long-term goal of achieving a 2% annual inflation rate. The future interest rate policy will still be determined based on price indices and employment conditions.
However, with the revised rate expectations, there has been a significant capital outflow from risk assets. According to Farside data, Bitcoin ETFs have experienced net outflows of over $100 million for several days, which is the main reason for the recent pressure on Bitcoin’s price.
GBTC Bitcoin ETF sees net inflows after a long absence
Although Bitcoin ETFs are an important factor, it is almost impossible to predict the net inflows and outflows of ETFs in the long term. We can only chase the trend after the fact and see if the capital flow will continue in the same direction. Additionally, ETF fund changes are subject to the operations of various brokerage firms and investor portfolio adjustments. ETF fund changes occur frequently on a weekly basis, making it difficult to judge whether an ETF will be popular in the long term. The high-growth period of Bitcoin ETFs has passed, and they have entered a plateau phase. It will be harder to predict future fund flows.
For example, according to statistics from the Farside website, Bitcoin ETFs have experienced seven consecutive days of net outflows from April 24th to May 2nd. The total outflow during this period reached $1 billion, and we also saw Bitcoin’s price decline to $57,000. However, on May 3rd, there was a major reversal, with a net inflow of $360 million, leading to a significant increase in Bitcoin’s price.
Further analysis of this $360 million inflow reveals that the largest amount of $102 million came from Fidelity’s FBTC, while the remaining $260 million was distributed among other Bitcoin ETFs, especially GrayScale’s GBTC, which saw a net inflow of $60 million after a long absence. The inflow of funds on that day also drove a sharp rise in Bitcoin’s price.
We expect the net inflow of funds to continue in the coming days. The reason is that there was a continuous outflow for seven consecutive days last week, and now with the market leaning towards a looser interpretation after the job report, coupled with the completion of earnings reports for US stocks and other tech stocks, the instability factors have reduced. As a result, funds are likely to flow back into cryptocurrencies and other risk assets, including Bitcoin ETFs and tech stocks. Greed will guide funds back to buy cryptocurrencies, indicating that Bitcoin’s price will stabilize and rise.
It is worth noting that leverage contracts no longer have a significant impact on market volatility after the recent ups and downs. Last week, it was difficult to make profits from these contracts due to frequent volatility and narrow profit margins. Our short-term fair price target for Bitcoin remains around $70,000, about 32% higher than the current mining cost price of $53,000. This is a reasonable valuation that can maintain stable computing power and average mining operating costs. Barring any unexpected circumstances, Bitcoin should experience a steady upward trend this week.
Looking back at last week:
【MICA RESEARCH】Bitcoin ETF fund inflows interrupted, buying momentum slows down
MICA Research content is also published on Substack. To not miss out on firsthand information, please click here to subscribe. Weekly reports and daily market discoveries will be sent to you via email.
Disclaimer: This article is for providing market information only. All content and opinions are for reference purposes and do not constitute investment advice or represent the views and positions of MICA. Investors should make their own decisions and trades, and the author and MICA will not be responsible for any direct or indirect losses incurred from investors’ trades.
Tags:
MICA
Analysis
Cryptocurrency
Employment
Market
Investment
Bitcoin
Research
Federal Reserve
Market Trends
Rate Cut
