25 Mar Bitfinex Alpha | ETF Flows Moderate and Local Bottom for BTC Established
As the market begins to recover again after a sharp correction at the start of last week, we have been focusing on where the bottom of the current trading range is. We believe the pullback last week for Bitcoin from its current all-time high of $73,666, and amounting to an approximate 17.5 percent correction, suggests we are close to establishing a local bottom – and indeed may have already done so.
Reviewing the pattern of corrections we have seen since BTC reached its floor in November 2022, shows that corrections do not usually exceed 20-24 percent, and we expect the current cycle will be no different.
We also do not see the state of inflows into spot Bitcoin ETFs as any cause for concern. Even though negative ETF outflows featured heavily last week, all of it is from the Grayscale Bitcoin Trust (GBTC), as investors both switch out of the higher fees demanded by GBTC and also take profit, especially as many of these investors are long-term holders who entered during the bear market. We would only be worried if the negative flows in GBTC began to be reflected in the newer ETFs like Blackrock’s IBIT and Fidelity’s FBTC.
GBTC investors are not the only sellers in the market. Whale wallet activities have also indicated significant profit taking, validated by the fact that the Spent Output Profit Ratio (SOPR) for long-term holders is firmly in profit territory. The lack of any movement in the Realised Price for long-term holders also shows that there has been no significant BTC purchases by this cohort since early February.
Our analysis indicates that in the current market, the floor for BTC is around $56,000, as this is both just above the Realised Price for the short-term holder cohort, and is also the estimated cost-basis for ETF investors. A fall to $56,000 would also be the maximum downturn we would expect from a new local high, amounting to around 23-24 percent – consistent with our earlier analysis of corrections to market bottoms.
In the broader macro economy, the US housing market is showing signs of improvement, as evidenced by a substantial increase in housing starts, bringing some hope that we could have a more balanced market, potentially easing the burden of shelter inflation, a notable factor contributing to the broader inflationary trends.
Further bolstering the housing sector’s outlook, the National Association of Realtors reported a significant rise in existing home sales. Yet, this positive trend is counterbalanced by the diminishing inventory of available homes. The limited supply of existing homes, alongside the uptick in new home construction, underscores the persistent market pressure on housing, and indicates that new construction alone may not be enough to take the heat out of the housing market.
The Fed has indicated, however, that it anticipates three policy rate cuts this year, and that despite the recent surge in inflation, the central narrative remains one of gradual inflation reduction towards the 2% target, albeit on an uneven trajectory.
US business activity has remained stable, even as there has been a rise in input and output costs, further underscoring the Fed’s complex challenge of managing inflation risks, and engineering a soft landing.
In the crypto-sphere, the SEC continues to delay ETF applications for spot ETH products, as it intensifies its scrutiny over Ether and the question of whether ETH should be classified as a security. The ongoing uncertainty has led to a widening of Grayscale Ethereum Trust’s discount to 20 percent, its lowest since November 2023.
On the brighter side, BlackRock launched BUIDL, its inaugural tokenised asset fund on the Ethereum network. This launch is a significant milestone in BlackRock’s digital asset strategy, providing qualified investors with a novel avenue to earn US dollar yields through blockchain technology, ensuring greater accessibility and transparency in on-chain offerings.
Have a good trading week!