What Happened This Week

Green candles on Monday morning

Bitcoin and the broader crypto market traded in slow fashion over the weekend. While Bitcoin reached a new high last Friday by quickly trading above $70’000, it did not find acceptance above the level until early Monday morning. Ethereum and other large-cap coins experienced a similar price action over the weekend, with AI-coins being the exception once again, with protocols like NEAR or RNDR reaching new heights on Saturday. In the chart below, you can see Bitcoin’s price action over the weekend, with the $70’000 level acting as a psychological resistance until it was broken on Monday morning, when Bitcoin reached a new all-time high above $72’000.

It seems that Michael Saylor does not stop with his BTC buying spree; on Monday he announced that MicroStrategy has acquired an additional 12’000 BTC for ~$821.7M using proceeds from convertible notes & excess cash for ~$68’477 per Bitcoin. MicroStrategy now holds 205’000 Bitcoin. This news was paired with the news that digital asset investment products saw record weekly inflows once again last week, with $2.7 billion of total inflows last week. This brought the total inflow year-to-date on Monday to $10.3 billion, which is already almost as much as there were in total in the whole year of 2021.

Uptick in U.S. inflation, and $1 billion of net inflows for spot ETFs on Tuesday

On Tuesday, TradFi markets, to the surprise of many, reacted bullishly despite the uptick in U.S. inflation in the CPI data release, which saw a small rise up to 3.2% in February, up from 3.1% in January. The Federal Reserve is still targeting a 2% inflation rate, and the FOMC meeting, scheduled for Wednesday next week, will be particularly interesting to observe, also because this upcoming FOMC meeting is one of four meetings in the year in which the Fed releases its dot plot, a summary of economic projections that includes expectations for where the Fed funds rate will be at the end of 2024.

On Tuesday, the daily net inflows for the Bitcoin spot ETFs reached a new high, with over $1 billion of daily net inflows. While the outflows from GBTC slowed down a little with only $79 million outflows, IBIT, the spot ETF of BlackRock saw daily net inflows of a record-high $849 million on Tuesday.

Dencun Upgrade on Wednesday

On Wednesday afternoon, the much-anticipated Dencun Upgrade went live on Ethereum. With the Dencun Upgrade comes Proto-Danksharding which is designed to reduce transaction fees for Ethereum rollups and brings consistent transaction fees by decoupling the resources dedicated to layer 1 smart contracts from the ones dedicated to rollups. In the chart below, you can see how the Dencun Upgrade impacts the fees on L2s like Arbitrum or Optimism. In terms of price action, Ethereum and L2s like ARB or OP did not react much after the Dencun Upgrade went live. On the other hand, Solana, as a competitor blockchain to Ethereum, went on a surge right after the Upgrade went live and closed the day on Wednesday up more than 10%.

U.S. and Asia accelerated the downward pressure on Thursday

On Thursday morning at around 08:00 CET, Bitcoin reached a new all-time high and, at the same time, put in yesterday’s high. From then on, the market started a broader correction, with Bitcoin trading down at $66’000 today early in the morning. The chart below shows the average Bitcoin return by hour over the last month. Interestingly, right when U.S. markets open, we can observe one of the few hours with a negative return by hour, and right when the Asian markets open in the middle of the night, our time, we can see another hour with a negative return by hour in the last month.

Over the last 24 hours around $800 million in positions were liquidated during the move down in the crypto markets. As we can see from the chart below, this is a rather large number in liquidations compared to the last few months, though still a lot less than during the liquidation event last week. Funding rates have also cooled down quite a bit during the last 24 hours.

Altcoins also took a hit on Thursday and during the night to Friday, with a few exceptions like SOL, AVAX or SEI only down a couple % in the last 24 hours. The Bitcoin dominance has been trading to the downside for the whole week and ETHBTC has been trading up since yesterday morning, so it will be interesting to see whether altcoins catch a bid over the weekend, if Bitcoin finds a bottom and stabilizes a bit.

Our Take

Another week of high volatility comes to an end, with major cryptos reaching yet new ATHs. The daily flows of the ETFs dominate the price action, which both can be seen on the upside (inflows) and downside (outflows). While the week started off extremely positive, at the time of writing, Friday morning, news about larger outflows from Grayscale’s ETF have shaken up the market substantially, and high single-digit and even double-digit correction downwards can be seen throughout all major cryptos. The outflow from Grayscale on Thursday was close to $500m, translating to roughly 6,850 BTC, which then were sold on the spot market thereby pushing down the prices alongside the negative (short-term) impact on the ever-increasing positive sentiment. On the brighter side, VanEck’s spot ETF recorded massive inflows during the past days as a direct result of their decision to implement a fee waiver until March 2025 (or up until $1.5bn AuM).

It appears that macro-related news, such as this week’s CPI print in the US, where inflation numbers came in hotter than anticipated, have less impact on risk assets in the current sentiment (both for stocks and crypto) during the past months. Nevertheless, the potential impact of interest rate decision(s) that are to come in the coming months cannot be underestimated. As it stands today, the probability for a rate cut in the US is expected earliest by 12th June, with CME futures traders allocating a probability of approximately 55%, which might go down even further if inflation numbers do not exhibit a significant cool-off during the coming weeks. A delayed rate cut will eventually imply that monetary policy remains tight, and generally less new inflows into risk assets is historically seen during those periods.

It is expected that the upcoming weeks and months will continue to show a strong narrative dominance by the ETF inflows, with the Bitcoin Halving coming into play as well by Mid-April. Therefore, heightened volatility is to be expected, with a general positive sentiment that can (and likely will) be accompanied by leverage flush outs due to sharp corrections.

The Week Ahead

Wednesday, March 20, 2024

• U.S. - FOMC Interest Rate Decision. Current consensus is no interest rate change, remaining at the 525-550 bps target range.

Thursday, March 21, 2024

• CH - SNB interest rate decision. There is a chance of a rate cut as the Swiss Inflation numbers in February cooled off substantially (1.2% vs 1.8% expected). A 25bps rate cut could be subject to discussion, however, likely to come in June instead according to HSBC analysts.