What’s going on with Bitcoin?
The world’s biggest cryptocurrency’s surge to $30,000 — the highest since June — has market watchers scratching their heads yet again. The rally last month led some to speculate if Bitcoin had finally become a haven for investors spooked by rocky markets. More likely it was the flood of liquidity promised by government bank bailouts amid a financial crisis in tech spheres.
This time there is no banking meltdown, and even “non-crypto people reach out to ask what’s going on,” said Noelle Acheson, the macro analyst who runs the Crypto is Macro Now newsletter.
At the same time, trading volumes are way down. Last week, they were 25% of the year’s average, and at just $3 billion a day for Bitcoin on trusted exchanges, James Butterfill, head of research at CoinShares, a European investment and trading group, told DL News.
The thin trading volumes could’ve, however, amplified Bitcoin’s price spike as low trading volumes and liquidity can cause prices to jump significantly higher or lower due to the lower availability of the asset being traded.
Market observers — crypto cheerleaders and traditional analysts alike — suggest that the $30,000 surge “could easily trigger a much stronger move up,” Acheson wrote in a blog.
She argued that people are looking into the industry “since 1) the market is still relatively thin compared to a year ago as some key market makers have withdrawn or scaled back, and 2) many investors missed the last rally and won’t want to have to explain why they missed the current one.”
Bitcoin surged in March after Silvergate Bank, Signature Bank, and Silicon Valley Bank collapsed. In the aftermath, the price jumped to $28,000 for the first time in nine months. Despite the absence of a trifecta of crypto-friendly lenders crashing and burning, market watchers are seeing signs of a recovery.
The first reason is Bitcoin’s price jump, which represented an 80% gain this year, itself, as it could boost the industry’s confidence.
“$30,000 was an emotional price level and for many investors it signifies that the ecosystem is moving on from the troubles of 2022,” Jake Boyle, chief commercial officer at crypto brokerage Caleb and Brown, told DL News.
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A second reason is that the US central bank is expected to ease up on its financial policies. The consumer price index number and the producer price index, both due this week, will likely indicate that inflation is slowing down, which could give the Federal Reserve reason to pause raising interest rates.
At the same time, interest in Bitcoin has jumped. Crypto investment company Deutsche Digital Assets’ weekly crypto market report said open interest in Bitcoin futures has surged to its highest level year-to-date, at over $9 billion. That means a large number of traders have taken active positions in Bitcoin futures contracts, indicating that more money is entering the market.
The pattern is also seen at wealth managers. CoinShares’ weekly flows report on Tuesday showed three consecutive weeks of inflows into digital asset investment products, which have brought flows back to a net inflow position year-to-date. Of those inflows, 98% were focused on Bitcoin, while short-Bitcoin products — which allow investors to bet on a fall in the Bitcoin’s price — suffered outflows.
A similar pattern played out at Deutsche Digital Assets as well with a lion’s share of its inflow — $66 million — targeting Bitcoin funds.
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Whales, market players that can have an outsized impact on price, may be another factor. Business intelligence firm MicroStrategy, a well-known Bitcoin whale, added 1,045 bitcoin to its treasury last week, taking its total holdings to 140,000.
MicroStrategy has acquired an additional 1,045 #bitcoin for ~ $29.3M at an average price of $28,016 per bitcoin. As of 4/4/2023 @MicroStrategy holds 140,000 bitcoin acquired for ~$4.17 billion at an average price of $29,803 per bitcoin. $MSTR https://t.co/IBufTxalnv— Michael Saylor⚡️ (@saylor) April 5, 2023
There are also signs that Beijing, which banned Bitcoin in 2021, is softening its stance to crypto. Not only has it offered its implicit support for Hong Kong’s budding regulatory framework, the Bitcoin price now also appears in search results on Douyin, China’s version of TikTok, which has approximately 700 million daily active users.
That being said, there are several factors that could throw a spanner and stop another Bitcoin rally in its tracks.
Firstly, the Federal Reserve will not meet until May 2 to set interest rates, with more data being published in the weeks until then. What that data says could determine what decision the central bank makes, which could in turn affect the state of the crypto industry.
Secondly, the crypto industry is still hobbled by US regulatory crackdown that has seen leading companies like Binance, Kraken and Coinbase being put under the microscope by market watchdogs. The result of these enforcement actions could either boost or scupper Bitcoin’s recovery.
Additionally, the industry is facing a slew of detractors on Capitol Hill, led by anti-crypto firebrand senator Elizabeth Warren, who are leveraging scandals like the collapse of FTX to introduce stricter laws regulating crypto.