2024-1-4 14:15 |
This current uptrend in Bitcoin, often seen as the bellwether of the broader cryptocurrency market, was largely fueled by growing speculation around the approval of a U.S.-based spot Bitcoin ETF (Exchange-Traded Fund).
Bitcoin Liquid Index 2nd January 2024
Anticipation of ETF Regulatory Approval Drives Market OptimismThe U.S. Securities and Exchange Commission (SEC) has been at the center of this optimism, with expectations that it might soon approve several spot Bitcoin ETFs. Reports suggested that notifications to ETF sponsors could start as early as the first week of January. This anticipation has not only impacted Bitcoin but also positively influenced other cryptocurrencies like Ether (ETH), Solana (SOL), and Avalanche (AVAX).
Market analysts and commentators have expressed mixed views on the potential impact of an ETF approval. While some, like Ryan Lee from Bitget Research, caution that immediate significant rallies in Bitcoin’s price may not materialize post-ETF approval, others hold a more bullish stance. Influential trader Scott Melker, for instance, predicted a potential surge to $54,000 in the days following the ETF approval. Similarly, Matrixport projected a rise to $50,000 within a month of the ETF’s passing.
Bitcoin’s Price Movement and Market DynamicsOn January 2, Bitcoin reached new 21-month highs, trading close to $45,900, according to Brave New Coin’s Bitcoin Liquid Index (BLX) amid heightened excitement in the Asia trading session. This rally was largely attributed to the market’s anticipation of the U.S.’s first spot Bitcoin ETF. Traders and analysts, including Crypto Tony and emphasized that the market trajectory was being driven by this anticipation. Despite Bitcoin’s upward trend, short sellers in the market have been preparing for potential volatility surrounding the ETF decision. While there has been some selling, it remained relatively muted in volume. Estimates around the ETF event suggest Bitcoin could target around $48,000. Interestingly, despite Bitcoin’s gains, there have been no significant losses for those betting against it, with only $38 million in BTC shorts liquidated on the day. Perpetual swap traders, often key players in the crypto market, appeared underexposed to this upward movement, which was primarily driven by spot trading. This underexposure could lead to a feedback loop of volatility, especially around the $45,000 mark.
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Wider macro trends are also contributing to the Bitcoin price. For one, market participants are reading a lot into remarks made by Federal Reserve Chairman Jerome Powell late in 2023 when he indicated that the existing US fiscal strategy is stringent enough, hinting at a possible halt to further increases in interest rates.
Chairman Powell weighed the dangers of overextending interest rate hikes against the risks of insufficient increases to control inflation. He suggested that the full impact of the rate increases might not be fully apparent yet and emphasized the importance of maintaining the Federal Reserve’s credibility in fighting inflation to ensure that public expectations regarding inflation remain stable. He agreed with other Federal Reserve officials that it’s too early to claim a triumph over inflation, noting that price rises are still higher than the Fed’s 3% goal. October saw a 3.5% increase in core inflation. Powell also reaffirmed the Fed’s readiness to further tighten monetary policy if necessary, although he noted that the urgency for excessive economic restraint has lessened.
Currently, the CME Fedwatch tool, which tracks the sentiment of interest rate traders, indicates that the market believes that there is a 89.1% chance that the Fed will keep interest rates the same and a 10.9% chance that they will cut interest rates at its next meeting. This is an interesting development because as recently as late November the market saw almost zero chance of a rate cut eventuating from the January 31st meeting. Given signs of a stronger US economy and slowing inflation, there are increasing indications that the Fed is ending its monetary tightening cycle. Bitcoin has historically been stronger during periods of looser monetary policy and when the global economy is stronger.
Gold has not followed the Bitcoin price surge, with gold at $2067 – almost unchanged on its December 1st price of $2075. Bitcoin was built to be a decentralized payment network that removed intermediaries and counterparties from transactions. It has a purposefully built hard-coded, predictable monetary supply. Investors may be finding BTC’s inherent narrative, a pure asset uncontrolled by interest rate cycles and chaotic central bankers more appealing now. This environment, with higher geopolitical volatility and imminent money printing by central banks, favors Bitcoin.
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