Bitcoin and the crypto markets continue their upside run

What happened this week

Positive Market Sentiment on Monday

The market sentiment on Monday was positive overall, after a strong week with the S&P500, Nasdaq and the Dow Jones reaching new all-time highs. But not only in the U.S., the Nikkei Index in Japan or the DAX in Germany are trading at multi-year or all-time highs as well. The S&P500 actually traded above 5’000 points for the first time in history on Friday last week. The driver behind the rally in U.S. stocks, particularly on the tech stock side, is likely coming from the hype surrounding Artificial Intelligence.

The positive sentiment in the traditional markets was also felt in the crypto space, Bitcoin has experienced the biggest weekly gain since October with a weekly performance of +13.4% last week.

Bitcoin’s run to the upside continued on Monday with Bitcoin trading above $50’000 again for the first time since December 2021. The strong performance of BTC has led to an increased BTC Dominance, reaching over 54% of the total crypto space on Monday. Let’s take a look at the price action on Monday, Bitcoin saw a significant up move, while U.S. equities had a rather quiet day, alongside the U.S. Dollar Index, trading rather sideways.

A Wake-up Call on Tuesday

Tuesday this week was a red day for U.S. equities, with the S&P500 reaching an intraday low of -2% as you can see in the chart below. The negative price action was likely due to U.S. economic data which came in as a surprise to the market, notably a robust jobs report and higher-than-anticipated inflation figures for January. The consumer price index (CPI) for January rose by 0.3%, a slight acceleration from December's 0.2% increase, marking a 3.1% year-on-year rise. Before the close on Tuesday, the U.S. stock markets got a small relief rally but still closed in the red for the day, with the S&P500 closing down -1.37%.

After the release of the U.S. CPI data, CME showed that the probability of the FOMC keeping interest rates unchanged in March has increased to 92%, compared to only 53% on January 29. The probability of the May FOMC cutting interest rates by 25bps was 62.1 %.

The chart below shows how Bitcoin traded during the CPI data release on Tuesday, before the release, at 14.30 CET, Bitcoin was trading a little lower already and then corrected roughly -2% to the downside right after the data release but then recovered the dump rather quickly, closing the day on Tuesday only slightly in the red, being down -0.44%. Ethereum experienced a similar move, closing Tuesday down by -0.73%.

On Tuesday Franklin Templeton has filed for a spot Ether ETF, joining other companies like Ark 21Shares and BlackRock who submitted filings for similar funds at the end of last year. Franklin Templeton has also included their interest in staking the ETH held by the fund, this idea was also included in Ark 21 Shares’ update on their filing. The final deadline for the SEC’s decision on the spot Ether ETFs is due on May 23, 2024.

In other news on Tuesday, it was announced that the sentencing of Chanpeng Zhao (CZ), founder and former CEO of Binance, was postponed until end of April 2024. His sentencing for money laundering was therefore pushed back two months without further explanation from the federal court.

Up Only on Wednesday

Bitcoin spot ETFs were the reason for some excitement felt on Wednesday because of the release of Tuesday's daily net spot BTC inflows which accounted for 12’806 BTC in a single day, topping every single daily net inflow since the launch of the ETFs on January 10, as this tweet from a Research analyst at K33 shows. The positive news resulted in a bullish day for Bitcoin, which increased by more than 4% in a single day, closing Wednesday at $51’849, the highest closing day since December 2021.

The outflows from Grayscales GBTC were once again rather low on Wednesday, with only 294.6 BTC, worth approximately $15 million, being transferred to Coinbase Prime Deposit for the day, according to Arkham Intelligence. Bitcoin not only traded above $51’000 for the first time in more than two years, but also reclaimed the $1 trillion market capitalization again for the first time since November 2021.

Bankrupt crypto lender Genesis Global received permission to sell about $1.6 billion in Grayscale cryptocurrency trust shares from a U.S. court on Wednesday. Genesis holds about 35 million shares in the Bitcoin trust, worth about $1.38 billion, and Ethereum trust shares worth about $207 million, according to court filings.

Overall, the crypto market cap increased by roughly 4% on a very positive day for cryptocurrencies, ETH closed Wednesday up more than 5% and even the infamous Dogecoin closed the day up more than 5%.

U.S. equities also had a positive Wednesday after the sharp drop on Tuesday, the S&P500 closed Wednesday up almost 1% and the Nasdaq closed up 1.2% on Wednesday night.

Quiet Thursday

Thursday started off as a quiet day for Bitcoin, which was trading around the $52’000 level for most of the day, reaching a daily high at $52’858 in the afternoon. At around the same time, the Bitcoin dominance started to lose some ground, giving room to altcoins. Ethereum reached a high of $2’868 yesterday afternoon and climbed around 2.5% compared to Bitcoin. ETH/BTC is currently trading at 0.0544, which is still quite a bit lower than the last high in January at around 0.06. The coming months could be interesting for ETH, with the SEC’s final deadline for the Ether spot ETF applications coming up in May 2024 and the upcoming Dencun Upgrade, which is expected to take place on March 13, 2024.

U.S. equities experienced another positive day after recovering a big chunk of Tuesday’s drop on Wednesday, the S&P500 closed up 0.58% yesterday and is trading above the 5’000 points level once again. Interestingly, MicroStrategy lost more than 5% in yesterday’s trading session.

Bitcoin has now been trading in a sideways fashion since Wednesday and it will be interesting to see if this gives some room for altcoins over the weekend. A good way to measure this is by looking at the Bitcoin dominance, which has, as mentioned earlier, increased over the last few weeks, being up 5% since mid-January.

Last but not least, we want to shed light on an interesting observation regarding the inflows and outflows of gold ETFs since the inception of the new Bitcoin spot ETFs. The 14 leading gold ETFs have seen outflows of $2.4 billion so far in 2024, according to a post from Eric Balchunas on X on Feb. 14. Bitcoin legend Jameson Lopp also shared this chart below, comparing the inflows of BTC spot ETFs with the outflows of the gold ETFs since the launch beginning of January.

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Our take

The prevailing sentiment in the cryptocurrency market remains positive, predominantly driven by the daily net inflows from the spot ETFs. BTC has seen a +7.5% increase since the beginning of the week, while ETH has surged by +12%. Despite the hotter-than-anticipated Consumer Price Index (CPI) numbers from the US on Wednesday, the impact on the crypto market has been unsubstantial. BTC managed to surpass the psychological level of $50’000 this week and was able to defend this threshold comfortably. The positive sentiment and price action is not only observable in the crypto market, but also in the global stock market. While S&P500 reached an all-time-high of over 5,000 points, also the tech-stock index Nasdaq is posting positive gains, fuelled by the earnings results and positive outlook for various heavy weights, such as Nvidia or Netflix.

Back to crypto: while most major tokens are experiencing upward momentum currently, lower-cap coins do also mimick the current trend, and certain narrative-related coins can come into the spotlight (again). The introduction of Sora, a new AI project from OpenAI, has shifted market focus to the current AI narrative. Tokens like AGIX, WLD, NMR and GRT have seen substantial increases in value as a result. With the current surge in the experimental phase of AI, particularly in image and video generation, this narrative could continue to drive prices higher in the coming week. As such, investors could consider diversifying their portfolios to capitalize on these emerging trends, resulting in increased volatility for such tokens.

Considering the current market conditions, it is prudent for investors to remain vigilant regarding potential volatility, such as larger flush-outs of liquidity due to excessive leverage ratios. While the prevailing uptrend suggests a positive trajectory, it's important to acknowledge the possibility of profit-taking activities, which could lead to temporary downturns in the markets, further accentuated by leverage flush-outs.

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The week ahead

Wednesday, 21 February 2024

• U.S. – FOMC Meeting Minutes

Thursday, 22 February 2024

• EUR – CPI Number Publication

Friday, 23 February 2024

• GER – GDP Number Publication