Bitfinex Alpha | BTC Bulls Remain in Force

Bitcoin demonstrated just how resilient it was this week, hitting a new year-to-date high, as flows continued into Bitcoin spot ETFs, despite – or perhaps because of – higher than expected CPI and PPI data.

At $52,700, BTC is up 25 percent since the start of the year and 207 percent above its November 2022 lows. This puts BTC at just 28.6 percent below its all-time high, with supply tight and demand increasing even at higher price levels.

Aside from the continued inflows into Bitcoin spot ETFs, we can also see that the short-squeeze ratio is lower this year, compared to previous years. We hypothesise that there are two other factors at play here. Firstly, that large whale investors have not been taking substantial short positions, given their expectation that prices will continue to rise; and, secondly, that they have put more of their resources into the spot market, favouring direct investment into BTC, rather than through derivatives.

Supply distribution analysis now shows that only 11 percent of total supply is being held at a loss, and an even smaller six percent of Long-Term Holders, as measured by entity, are in deficit. Historically, such a supply distribution has presaged early bull market conditions.

Across the broader economy, the continued persistence of inflation, and a downturn in consumer spending, has pushed out expectations of a rate cut to May or even June.

Consumer spending though, even after showing a softening, is still expected to remain resilient, thanks to the clear trend that inflation is decelerating over time, as well as a stubbornly strong labour market. Moreover, the US housing market has shown signs of optimism, with homebuilder confidence experiencing a third consecutive month of growth.

Across the crypto-sphere, we continue to see regulators and financial institutions worldwide taking significant strides to both safeguard consumers and harness the innovative potential of digital currencies. The UK Financial Conduct Authority has been at the forefront of consumer protection, issuing over 2,285 alerts in the past year to combat cryptocurrency promotions from unlicensed providers. 

In South Korea, there has also been a notable increase in vigilance against illicit crypto activities, with reports of suspicious cryptocurrency transactions surging by 48.8 percent in 2023.  In response, the Financial Intelligence Unit is developing a system designed to halt suspicious transactions pending investigation, reflecting a growing global trend towards stricter oversight of the crypto market.

In the United States, however, Fed Governor Christopher Waller highlighted that US dollar-pegged stablecoins, which have expanded with the growth of decentralised finance, and which remain pivotal to crypto trading, are bolstering the US dollar’s supremacy. Even though they are synthetic by design, the use of stablecoins backed by the dollar only serves to strengthen the greenback’s demand.

Adding to this narrative of how crypto and blockchain can bolster innovation,  Citibank announced a successful proof-of-concept exploring the tokenisation of private equity funds. This move not only demonstrates the practical applications of blockchain technology beyond traditional cryptocurrencies but also signals a growing interest from major financial institutions in the digital transformation of asset management.

Have a great trading week!

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