Bitcoin Surge: Exploring ETF Inflows and Market Dynamics
Crypto Kids, Bitcoin has surged to a new high of $51,600, prompting me to prepare this article and delve into the reasons behind this price increase and outline my future expectations.
In less than two weeks, the price of Bitcoin has skyrocketed by 21%, reaching a 777-day high. On January 11th, we witnessed the much-anticipated launch of the Spot ETFs. Bitcoin’s price peaked at $49,000 following the event and experienced a sharp drop from its peak to $38,500 within just three weeks, due to uncertainties about their success and concerns regarding outflows from Grayscale.
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However last week, the selling pressure from $GBTC holders started to reduce and fall below $100M per day. As a result, the market began to stabilize with the price converging for a long-awaited breakout. When we observed that BlackRock’s $IBIT and Fidelity’s $FBTC received significant inflows, Bitcoin rallied.
Following the breakout from the inverse head and shoulders structure and the bullish pennant we discussed on previous videos, Bitcoin experienced its first-ever bullish price movement after the ETF launches, skyrocketing from $43,300 to its current value of $51,450 as I write this article.
After 8 candles of upwards momentum, we had a minor red day due to CPI data that failed to meet expectations. We can observe similar price action with the S&P 500, as we hit a new ATH fueled by the anticipation of dovish interest rates and reducing inflation. After yesterday, the index corrected. Now, the CME Group illustrates high probabilities of rate decreases to be announced in the June FOMC meeting.
However, today, Bitcoin picked up where it left from and rallied past the $51,000 level, followed by an ETF net flow report of over $630M (second highest sum since launch day). The price appears to be trapped in a loop where it increases due to bullish inflow data. When Bitcoin’s spot price rises, so does the value of the ETFs, causing traditional investors to begin “FOMOing”. This leads to ETF issuers accumulating more Bitcoin in order to compensate for the demand.
From February 11th and onwards, investors who sold their $GBTC holdings due to high fees of 1.5%, have been freed of their 30-day lock-up period to switch into other alternatives, resulting in further “recycled” buying pressure into the markets.
See the following table for total net flow data since launch.
Impressively, $IBIT was trading in the number four spot (out of 3,400 ETFs on the market) for highest YTD flow. It was amongst the ranks of some of the most popular exchange traded funds such as the $QQQ and $VOO.
Another remarkable fact is that the net cumulative flows for the 10 Bitcoin ETFs trading on the market (including $GBTC) have doubled in the past 3 days, amassing over $3 Billion. In comparison to arguably the most famous Spot ETF in history, $GLD, it took nearly two years for the investment fund to reach that milestone.
In conclusion, the primary driver of the recent price surge has been the buying pressure generated by the ETFs and their increasing popularity. Just this week, a conference was held in Miami, focusing heavily on promoting these investment vehicles to financial advisors. This concerted effort could drive adoption across various investment vehicles, including 401ks, Roth IRAs, and more.
As you all know, Bitcoin’s supply is limited to only 21,000,000 units. The daily rewarded Bitcoin to miners is 900 Bitcoin – soon dropping to 450 after the halving (see cryptokid.com/halving-countdown). Currently, the ETFs are demanding 12.5x the daily Bitcoin that is released to the circulating supply. And based on fundamental economics, as the demand keeps rising and supply diminishes, the price of the asset, theoretically, should push higher.
An interesting chart to analyze is the one above. Currently, a total of 70% of the circulating Bitcoin supply (13.73M) has not moved for more than a year – represented by the orange line. Upon examining the graphic, you can observe periodic cycles where HODLers accumulate and subsequently sell to take profits. Historically, when there is a transition from accumulation to selling, Bitcoin tends to reach an all-time high (ATH) followed by a prolonged decline. As of now, we haven’t witnessed the beginning of this shift, leading me to believe that the price could rally further.
What I infer from the previous two charts is that a significant supply shock awaits us. When we aggregate the holdings of both BlackRock and Fidelity, they already account for approximately 3% of the circulating supply after discounting the 70% of Bitcoin that has not moved for more than a year. Remarkably, this accumulation has been accomplished within just one month of active trading on the markets.
All of this has occurred without retail investors re-entering the markets. The recent surge has been primarily fueled by options traders (suggested by the ATH in open interest) speculating on the approval of the Spot ETFs, along with traditional investors purchasing the listed investment funds following their launch. Google Search trends suggest that online interest in Bitcoin is not even close to what it was during the previous bull market. This indicates to me that once retail investors and traders return, the price of Bitcoin will rally further.
Nevertheless, Bitcoin has been reaching new all-time highs in countries such as Turkey, Argentina, Japan, and Nigeria.
This trend primarily stems from the fact that in nations facing hyperinflation, residents have limited options but to invest in assets like gold, silver, or Bitcoin to safeguard their wealth from depreciating currencies. Among these options, Bitcoin emerges as the superior choice, considering the costs associated with asset storage (safes, bank fees, etc.). Additionally, Bitcoin stands out as the only asset among the three with a fixed and definite supply capped at 21 million coins. In contrast, the supply of gold and silver remains uncertain, with potential discoveries in the future leading to a decrease in their values.
Recent acknowledgments by prominent figures further underscore Bitcoin’s growing legitimacy. The Federal Reserve Chair has recognized Bitcoin as a commodity, while the CEO of BlackRock, Larry Fink, has drawn comparisons between Bitcoin and Gold. Fink highlighted why Bitcoin might offer better protection against inflation and geopolitical risks, emphasizing Bitcoin’s nearing of its fully diluted market cap, rendering it scarcer than gold.
CNBC Interview with BlackRock CEO, Larry Fink:
And finally, my technical standpoint for Bitcoin on the macro level is rather bullish. The ‘SuperTrend’ indicator has just signaled a ‘Buy’ on the monthly time frame. Historically, this signal has provided Bitcoin holders with an average return of 1210.65%. Therefore, I personally believe that this will confirm to traders, investors and VCs with lower risk tolerances that the bear market is officially over and higher prices are to be expected in the upcoming months.
Furthermore, another chart reinforcing my bullish stance is Bitcoin’s recent breakthrough of the 0.618 on the monthly Fibonacci retracement. Historically, whenever Bitcoin surpasses this level, it tends to signal the approach of new all-time highs. What distinguishes our current cycle to those of which in the past is that we are witnessing this breakthrough prior to the halving event. Consequently, it’s plausible that we may surpass $69,000 quicker than initially anticipated.
My personal expectation is that Bitcoin will exceed its previous ATH by summer of this year and reach its new cycle peak in Q4. This period also aligns with my expectation of a resurgence in retail participation and the onset of a significant altcoin season.
Conclusion
In conclusion, as Bitcoin continues to exhibit strong bullish indicators both technically and fundamentally, the outlook for its price trajectory remains promising. The recent surge, driven by factors such as the introduction of Spot ETFs, increasing institutional adoption, and the anticipation of retail investor resurgence, suggests that Bitcoin’s journey to new ATHs is well underway. With key metrics pointing towards sustained growth and potential milestones on the horizon, such as surpassing $69,000 and beyond, the coming months promise to be an exciting period for cryptocurrency enthusiasts and investors alike.
As always, it’s essential to remain vigilant and informed in navigating the dynamic landscape of the crypto market. Stay tuned for further updates and analysis as we continue to chart the fascinating course of Bitcoin and the broader digital asset ecosystem.
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