Bitcoin Is Up 100% This Year. This Is Not Just Because of the Spot BTC ETF Hype
- Bitcoin soared above $34,000 this week and is up 106% so far this year, following the grueling decline in 2022.
- The recent rise reportedly happened due to excitement surrounding a possible spot ETF Approval, but do other factors also play a role?
- Limited supply, underinvested market participants and Bitcoin’s renewed luster as a safe haven from difficult traditional markets and geopolitical turmoil are catalysts worth considering.
Bitcoin (BTC) pulled off a massive rally last week on two spot ETF stories that turned out to be complete jinxes. That the price barely fell even after the fake news came to light suggests that it may not have been ETF expectations driving the increase.
As a reminder, Bitcoin, which had been hovering in a very narrow range of around $27,000 to $28,000 for weeks, skyrocketed to over $30,000 ten days ago after a media outlet tweeted that BlackRock’s spot ETF Application won the victory with the US Securities and Exchange Commission (SEC approval. Within minutes, the tweet was exposed as a mistake and Bitcoin quickly gave back some, but not all, of its profits.
Then some observers noticed beginning This week that the ticker for BlackRock’s spot Bitcoin ETF – IBTC – appeared on the website of trading clearinghouse DTCC. Market participants are interpreting the news as a signal that the fund will soon be approved by the SEC. The bullish signal surprised shorts and traders and led on Monday evening saw the price rise to $35,000.
However, on Tuesday evening it was revealed that the IBTC ticker had been available on the DTCC website for months and said literally nothing about whether a spot Bitcoin ETF might be coming or not.
Nevertheless, Bitcoin price remains very close to Monday’s high, currently at $34,400, up almost 30% over the past 10 days and up more than 100% for 2023.
If not an ETF, then what?
Some analysts argue that Bitcoin is in demand as a safe haven, pointing to the high government spending and the associated rising debt levels, the unstable stocks and bond markets, as well as the increasingly limited supply of cryptocurrencies.
“We now have the largest asset managers in the world promoting Bitcoin as a “flight to quality” amid the devaluation of fiat currencies and increasing global tensions and wars ” said Charles Edwards, founder of Capriole Investments. “You can’t ask for more.”
“After 2022 led so many to believe that digital assets are correlated with stocks and bonds, many are puzzling over the ‘new ‘ old normal,” emphasized Jeff Dorman, Chief Investment Officer at Arca. “A debt spiral leads to a loss of trust in banks and governments and a repricing of risk-free rates at record supply, which is bad for bonds and equity valuation models, but good for alternative forms of debt wealth and money creation,” he added.
Hedge fund giant Paul Tudor Jones touted gold and BTC as attractive investment options while geopolitical risks and “unsustainable” US debt make owning stocks difficult.
With the classic 60% stocks and 40% bonds portfolio going through one of its worst phases, an uncorrelated asset like BTC could be a strong candidate for diversification, K33 Research and CoinShares argued separately.
Banking problems in the US and China:
In March, Bitcoin rose from $20,000 to around $28,000 during the regional banking crisis in the US, which led to the demise of Silicon Valley Bank and Signature Bank, among others.
The recent crisis in China’s shadow banking system may also have helped Bitcoin in a similar way, Switzerland-based investment manager 21Shares noted in a report last week.
The report explained that the People’s Bank of China (PBOC) provided the equivalent of over $100 billion in credit facilities to support the collapse of Chinese real estate giants Evergrande and Sunac earlier this month, the highest amount in three years has liquidity in the banking system.
When the PBOC intervened in January 2020 by lowering the deposit reserve ratio for financial institutions, which equated to a $115 billion capital boost to the Chinese economy, BTC gained 13% and active Bitcoin addresses increased by 48%, the report says.
As long-term bond yields have risen to nearly 5%, some banks are sitting on huge unrealized losses on bonds, raising concerns about the health of the U.S. banking system.
In fact, last week Bank of America (BAC) reported third-quarter losses of $131 billion in its held-to-maturity (HTM) portfolio. Stock market investors have noticed this, sending BAC’s share price down nearly 8% in the last five sessions and 24% year-to-date.
“Banking crises have often led people to turn to Bitcoin as a escape to quality, reinforcing crypto’s use case as a hedge against evolving macroeconomic impacts and an evolving geopolitical landscape,” analysts at 21Shares wrote.
Spot BTC ETF could still be a key catalyst:
Despite the high odds for a spot BTC ETF, many market participants have been sleeping on a possible upside in BTC price, according to Alex Thorn, head of firm-wide Research at Galaxy Digital.
“A lot of people weren’t positioned well for a rally,” Thorn said Tuesday in an interview at the State of Crypto conference in Washington, D.C.
This week’s surge sidelined and contributed to options traders at the explosiveness of the price movement, Thorn noted earlier this week.
Historically illiquid markets and record amounts of Bitcoin held by long-term investors have laid the groundwork for a supply shock, he added.
Nearly 70% of Bitcoin’s supply hasn’t moved in a year, and 30% of outstanding tokens haven’t changed hands in five years, Glassnode data shows.
“We have all underestimated how underinvested investors are in digital assets and how little new money is needed to trigger significant price fluctuations,” said Arca’s Dorman.
