On Tuesday, the price of bitcoin fell from $49,900 to $48,300 following the release of US inflation data. As NewsBTC reported, the data was more interesting than expected. Instead of 2.9%, the headline CPI reached 3.1%, while the core CPI even stood at 3.9% instead of the expected 3.7%.
The traditional financial market reacted negatively and dragged bitcoin down with itself as expectations of interest rate cuts have shifted into the future. Prediction markets are now pricing in just four rate cuts in 2024 after CPI inflation hit 3.1% in January.
This is a huge drop in expectations, as just over a month ago markets were still pricing in 6 rate cuts. The Fed's most recent forecast was for three rate cuts in 2024. The probability of a March rate cut is less than 10% and the probability of a May rate cut is falling rapidly.
However, unlike the S&P 500, the price of bitcoin reacted strongly and quickly rose back to $49,900. The bitcoin market reaction is quite telling for the short-term future. And the price of bitcoin shows just that today. At press time, btc rose above $51,500, marking a new yearly high. Here are 4 key reasons:
The surge in bitcoin ETF inflows marks a pivotal moment for bitcoin, reflecting a significant shift in investor sentiment and market dynamics. On a record day on Tuesday, net inflows into spot bitcoin ETFs reached $631 million, led by The Nine with an inflow of $704 million, indicating substantial bitcoin accumulation.
Key players like Blackrock and Fidelity played a major role in this influx, with Blackrock seeing nearly $500 million ($493 million) in inflows and Fidelity $164 million. The overall net inflow of $2.07 billion in four business days, averaging over $500 million per day, highlights the astonishing sustained demand for bitcoin.
This demand is notably for new capital, as outflows from GBTC remained stable at $73 million, indicating that these inflows are not simply a turnover of GBTC but represent new investments. Matt Hougan, CIO of Bitwise emphasized The importance of this movement:
IMHO, the (numbers) underestimate the new fundamental demand for these ETFs from new investors. People assume that all the money coming out of GBTC to date is rotating into other bitcoin ETFs. But a good part comes from inorganic holders (…) Long-term investors have topped up that amount and added $3 billion more. I suspect real new investor-led demand is above $5 billion and shows no signs of slowing down.
#2 Genesis GBTC Liquidation Concerns Ease
Fears of a bitcoin crash, similar to FTX's GBTC sale, triggered by Genesis' planned liquidation of Grayscale bitcoin Trust (GBTC) shares have eased, as reported today on Bitcoinist. The liquidation, necessitated by Genesis' bankruptcy, was initially seen as a potential catalyst for the market slowdown.
The bankrupt lender needs to liquidate approximately 36 million GBTC shares, valued at around $1.5 billion, as part of its strategy to resolve financial challenges arising from major loans and regulatory settlements.
However, the proposed Chapter 11 deal involves in-kind payments to creditors, reducing direct selling pressure on bitcoin. This strategy aligns with the interests of long-term bitcoin holders, potentially limiting market volatility. Greg Schvey, CEO of Axoni, highlighted:
The proposed Chapter 11 settlement requires Genesis to pay creditors in kind (i.e., bitcoin lenders receive bitcoins in exchange, rather than US dollars). (…) In particular, in-kind distribution was a priority negotiation topic to prevent long-term btc holders from recognizing profits upon receiving the return of USD (i.e. a forced sale). This would seem to indicate that a substantial volume of lenders are not planning to sell immediately.
#3 Demand for over-the-counter products exceeds supply
He statement According to CryptoQuant CEO Ki Young Ju, “bitcoin demand exceeds supply on OTC desks currently” is a significant indicator of the market's underlying strength. OTC transactions, preferred by large institutional investors for their discretion and minimal market impact, reflect strong demand for bitcoin. This imbalance between supply and demand on OTC tables suggests that big players are hoarding bitcoin, a bullish sign for the cryptocurrency's price outlook.
Analysis of futures and spot market indicators by @CredibleCrypto sheds light on the technical factors that indicate a bullish continuation for bitcoin. The analyst notes: “The data supports the idea that this was 'the fall.' – OI restored to pre-last pump levels – Funding declines through this local consolidation – Spot premium is back.”
These observations suggested a healthy market correction rather than the start of a downtrend, with the restart of open interest and declining funding rates indicating that the market has absorbed the shock and is primed for an upward move.
In conclusion, the combination of record ETF inflows, easing concerns over Genesis' GBTC liquidation, strong OTC demand, and favorable futures and spot market dynamics provides a compelling case for bitcoin's potential rally. Each of these factors, backed by expert insights and market data, underscore growing investor confidence.
Featured image created with DALL·E, chart from TradingView.com
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