On Tuesday, the Bitcoin price fell from $49,900 to $48,300 after the release of the US inflation data. As NewsBTC reported, the data came in hotter than expected. Instead of 2.9%, headline CPI came in at 3.1%, while core CPI was even at 3.9% instead of the expected 3.7%.
The traditional financial market reacted negatively, dragging Bitcoin with it, as expectations for interest rate cuts shifted further into the future. The forecast markets are now pricing in just 4 rate cuts in 2024 after CPI inflation reached 3.1% in January.
This is a big drop in expectations as the markets were pricing in 6 more rate cuts just over a month ago. The Fed’s most recent forecast was for 3 rate cuts in 2024. The probability of a rate cut in March is below 10% and the probability of a rate cut in May is rapidly declining.
However, in contrast to the S&P 500, the Bitcoin price showed a strong response and quickly rebounded to $49,900. The reaction of the Bitcoin market is quite telling for the short-term future. And the Bitcoin price shows just that today. At press time, BTC had risen above $51,500, which was a new annual high. Here are 4 main reasons:
#1 Record-Breaking Bitcoin ETF Inflows
The surge in Bitcoin ETF inflows is a pivotal moment for Bitcoin, reflecting a significant shift in investor sentiment and market dynamics. In a record-breaking day on Tuesday, net inflows into spot Bitcoin ETFs reached $631 million, led by The Nine with an inflow of $704 million, indicating a significant accumulation of Bitcoin.
Key players such as Blackrock and Fidelity played a significant role in this influx, with Blackrock experiencing nearly half a billion dollars ($493 million) in inflows and Fidelity $164 million. The overall net inflow of $2.07 billion over four trading days, an average of more than half a billion per day, highlights the staggering sustained demand for Bitcoin.
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This demand is particularly new capital, as GBTC outflows have remained stable at $73 million, indicating that these inflows are not simply a rotation of GBTC, but represent new investments. Matt Hougan, CIO of Bitwise emphasized the importance of this move:
IMHO the [numbers] underpins the fundamental new investor demand for these ETFs. People assume all the money flowing out of GBTC so far is turning to other bitcoin ETFs. But a good part of it is from inorganic containers […] Long-term investors topped it up, adding $3 billion more. I suspect the actual new investor-led new demand is north of $5 billion, and shows no signs of slowing.
#2 Genesis GBTC Liquidation Concerns Eased
Fears of a Bitcoin crash, similar to FTX’s sale of GBTC, caused by Genesis’ planned liquidation of Grayscale Bitcoin Trust (GBTC) shares have been alleviated, as reported today on Bitcoinist. The liquidation, necessitated by Genesis’ bankruptcy, was initially seen as a potential market downturn catalyst.
The bankrupt lender is to liquidate about 36 million shares of GBTC, worth about $1.5 billion, as part of its strategy to resolve financial challenges stemming from significant loans and regulatory settlements.
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However, the proposed Chapter 11 settlement involves in-kind repayments to creditors, reducing direct selling pressure on Bitcoin. This strategy aligns with the interests of long-term Bitcoin holders, potentially limiting market volatility. Axoni CEO Greg Schvey emphasized:
The proposed Ch 11 settlement requires Genesis to repay creditors in kind (ie bitcoin lenders receive bitcoin in return, rather than USD). […] In particular, in-kind distribution was a priority negotiation topic to prevent long-term BTC holders from recognizing gains when they receive USD back (ie a forced sale). This would seem to indicate that a significant amount of borrowers do not intend to sell immediately.
#3 OTC demand exceeds supply
The statement by Ki Young Ju, CEO of CryptoQuant, that “Bitcoin demand currently exceeds supply at OTC desks” is a significant indication of the underlying market strength. OTC transactions, preferred by large institutional investors for their discretion and minimal market impact, reflect strong demand for Bitcoin. This supply-demand imbalance at OTC banks suggests that major players are piling up Bitcoin, a bullish signal for the cryptocurrency’s price outlook.
#4 Futures And Spot Market Dynamics
The analysis of futures and spot market indicators by @CredibleCrypto sheds light on the technical factors that indicate a bullish continuation for Bitcoin. The analyst points out: “Data that supports the idea that it was ‘the dip’. – OI has reset to levels before the last pump – Funding is decreasing due to this local consolidation – Spot premium is back.”
These observations suggested a healthy market correction rather than the start of a bearish trend, with the recovery in open interest and the decline in funding rates indicating that the market has absorbed the shock and is ready for upward movement.
In conclusion, the combination of record ETF inflows, eased concerns over Genesis’ GBTC liquidation, strong OTC demand and favorable futures and spot market dynamics present a compelling case for Bitcoin’s potential rally. Each of these factors, supported by expert insights and market data, highlights a growing investor confidence.
Featured image created with DALL·E, chart from TradingView.com
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While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
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