SwissBorg MacroScope - January 15th
The Bitcoin ETFs are finally here - what’s next for crypto?
Significant inflow into Bitcoin ETFs
This week is a special one for the crypto market. As anticipated in our last report, the different spot ETFs have been approved by the SEC marking the beginning of Bitcoin’s long path to institutional adoption.
The first trading day of the ETFs was a clear success with more than $4.5 billion traded in a single day, and more than 700,000 individual transactions registered. As a comparison, this represents double the average number of transactions of the biggest ETF tracking the Nasdaq: QQQ.
However, it is crucial to make the distinction between transaction volume and the influx of capital into ETFs. The latter gives a better understanding of the potential impact of the ETFs on Bitcoin as it represents the net amount of Bitcoin that needs to be purchased to support the ETFs.
According to Bloomberg’s Senior Analyst, Eric Balchunas, the first two days recorded a net influx of $819 million. Blackrock has been leading with around half of billion of inflow followed closely by Fidelity with $422 million.
Further, we also saw Larry Fink, the CEO of the $9 trillion asset management company Blackrock, talking about how Bitcoin makes sense for one portfolio as the new digital gold. In an interview, Larry Fink mentioned that “Bitcoin is no different than what gold represented over a thousand years [..] and it is an asset class that protects you.”
The long term implications of the ETFs are enormous. Bitcoin is moving from a niche to a mainstream asset. Soon asset managers are going to propose exposure to Bitcoin to their clients and start promoting the different properties of this asset. This can potentially drive the next wave of demand for crypto.
This is happening while the percentage of circulating supply locked up in wallets that haven’t touched their assets in 1+ years is at an all time high of 70% creating a supply squeeze for Bitcoin. In the past, peaks in this chart have preceded major bull runs.
However, despite the powerful combination of positive news, Bitcoin didn’t react in a particularly bullish manner. On the approval day, It first touched $49,000 before falling back to the $42,000 levels, a variation of over 17%. It seems that the market is currently indecisive, and in the short term, it could be wise to expect a continuation of this range. The impact of the ETF will likely be the driver of the next big price movement.
If you’ve been following markets and macro events, you most likely know that the last few weeks have been filled with one important event that investors care a lot about: CPI release. This event holds significant importance because it serves as an important monitor in determining whether the Fed is ready to pivot, or in simpler terms to start cutting rates.
This so-called “Fed pivot” is one of the most awaited moments in macro: it represents a clear signal that the Fed is ending its hawkish tone and that it will get back to supporting liquidity in the system. Currently, the market is expecting the pivot to happen in March 2024 with rate cuts at every subsequent meeting. But for this to happen, they need to be sure that inflation is back under control.
The CPI release came with a little surprise to the upside. While it does not reconsider the view that the worst of inflation is behind us, this could put a bit more pressure on the Fed to cut rates as early as they planned.
Consequently, it might be argued that the market is a bit too optimistic about a cut in march. This can lead to readjustment in expectation potentially influencing prices in the short term.
Chart of the week
The ETH/BTC chart experienced a significant surge this week, up 20% following the approval of spot Bitcoin ETFs.
This move can be attributed to the forward-looking nature of the markets, with speculation centred around the next big thing: a probable spot ETH ETF. In an interview, the CEO of Blackrock, Fink, explicitly said that he sees value in having one approved in the United States.
Nonetheless, the rebound in ETH was somewhat anticipated. At that time in the cycle, it is fair to think that Ethereum might start outperforming Bitcoin again. The question is: will history repeat itself this time?
Our In-House View
SHORT TERM VIEW: What might happen in the next 2 weeks?
- Bitcoin is consolidating between the $41-49k level. The short term direction of the market will likely be guided by the millions of eyeballs looking at the new Bitcoin ETF. For now, it can be wise to exercise a bit of caution in the market until a clear consensus on the impact of the ETF is seen in Bitcoin price actions.
- For now, Ethereum is stronger than Bitcoin. This could continue if Bitcoin continues to range and as speculation around an ETH spot ETF grows.
LONG TERM VIEW: Where are we in the cycle?
- We are still in the beginning of the bull market and we expect to see BTC > $100k, ETH > $10k and SOL > $500 as new ATH in the next leg of the cycle.
- A dovish stance is starting to appear on central banks sides and global liquidity is starting to be in positive territory. With the greenlight of the spot ETF, all the elements are in for a continuation of the bull market. The only key event left is the so-called “Fed pivot” which will be an important one to monitor in the next months.
- We believe in ETH as the superior asset to Bitcoin for the next decade. Further, our view is that SOL has the biggest potential for consumer app adoption in the next decade.
- Our favourite altcoins thematics for the next upleg are Socialfi, Gamefi, AIfi & Infrastructure for scalability.
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