Bitfinex Alpha | Bitcoin Momentum Positive across All Time Horizons

Investor confidence in Bitcoin is rising, as evidenced by the rise in BTC at the end of last week. We attribute the gain in part to the slowdown in selling of Grayscale’s GBTC funds, and a significant uptick in total crypto asset inflows.

Indeed, Bitcoin holdings of the new BTC ETFs are now larger than MicroStrategy’s holdings, and we expect flows to continue. These inflows, coupled with the impending 2024 Bitcoin halving and the sustained high levels of illiquid supply – with more than 70 percent of BTC in the hands of long-term holders – paint an exceptionally bullish picture for BTC price movements.

On-chain data is also increasingly supportive of a more bullish environment for Bitcoin, with, in particular, the MVRV Ratio rising above its one-year Simple Moving Average. The Short-Term Holder Realised Price is also providing positive signals as a slower rate of appreciation in this metric indicates that there is a deceleration in profit-taking, hinting at a market consensus that there might be more room for growth.

Meanwhile the current economic landscape in the US suggests to us that rate cuts are less likely to come in March and more likely now in May. The latest Senior Loan Officer Opinion Survey reveals a nuanced scenario where tightening lending criteria across most loan categories continued in the fourth quarter, though at a slower rate, in apparent response to an eased contraction in loan demand across all categories. 

This is mirrored in the behaviour of business and consumers, who are showing a reluctance to take on new loans, as illustrated by a sharp drop in the growth of consumer credit. The backdrop of high-interest rates has cast a shadow over consumer spending, which we believe presents a compelling case for the Fed to ease rates soon.

Balanced against that, however, new data shows that the US services have accelerated, driven by an increase in new orders and a recovery in employment levels. 

The picture is of a US economy, which has demonstrated remarkable resilience, despite the challenges posed by high borrowing costs, stringent credit conditions, and diminishing pandemic-era savings. 

Substantial government spending and consumer savings, have been pivotal in driving GDP and employment growth. But it is clear that the higher borrowing costs and tighter credit conditions are in danger of suppressing economic activity, which should spur the Fed to react, if it is to sustain the momentum of economic growth and address emerging challenges.

In the cryptocurrency industry, the new Bitcoin ETFs hit a new milestone, with their holdings now exceeding those of MicroStrategy. This growth underscores the robust appetite for these products, particularly by investors who prefer the easier access they provide and who are willing to delegate custody to a third party.

Parallel to this momentum, the regulatory landscape continues to evolve, with Hong Kong unveiling a public consultation on a new licensing framework aimed at governing over-the-counter trading. This initiative seeks to bolster regulatory clarity and protect investors by curbing money laundering and terrorism financing risks.

The institutional enthusiasm for crypto investing is also reflected in  Chicago Mercantile Exchange data showing a 35 percent uptick in trading volume in January, driven by a 42 percent increase in Bitcoin futures trading, which reached $73 billion, following the approvals of the spot Bitcoin ETFs.

Moreover, the regulatory environment is tightening elsewhere, with South Korea introducing the Virtual Asset User Protection Act, set to take effect on July 19. This legislation imposes stringent regulations on the cryptocurrency industry, including severe penalties for grave offences such as market manipulation and illegal trading.

Happy Trading!

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