Volatility, Post FOMC Rally, Spot ETF Outflows and MicroStrategy Bought More BTC

What Happened This Week

A quiet start to the week despite record weekly inflows in the week before

Last weekend, Bitcoin traded just below $70’000 early Saturday morning, before correcting down to around $64’000 on Sunday, closing the weekend with a weekly close around $68’000. The start of the week on Monday was uneventful, with Bitcoin and the broader crypto market trading in a sideways fashion. This rather boring price action was accompanied by news of record weekly inflows in the prior week, with a total inflow of $2.9 billion, breaking the record and pushing year-to-date inflows to over $13 billion, smashing the full 2021 inflows already in March. When such positive news doesn't have a positive impact on the price action, one should be cautious.

Some altcoins did have an interesting weekend and start into the week. Solana, for example, saw an increase of more than 15% over the weekend and traded above $200 again on Monday for the first time since the end of 2021.

The traditional markets in the U.S. also did not see much action on Monday; it seems that most market participants were waiting for the FOMC meeting on Wednesday evening. The Bitcoin spot ETFs did see their first single-day net outflows in a while on Monday, with total outflows of $154 million. Grayscale’s GBTC did have a single-day net outflow of $642 million, setting a record for the Grayscale ETF since its first trading day. BlackRock’s ETF IBIT saw a net inflow of $451 million on Monday.

Red Tuesday

After the quiet day on Monday, Bitcoin started correcting to the downside during the night to Tuesday. Around midnight, Bitcoin was trading at $67’500 and then traded down roughly -10% to around $60’500 on early Wednesday morning. Once again, this price action was accompanied by the rather positive news that MicroStrategy once again acquired an additional 9’245 BTC for $623 million using proceeds from convertible notes & excess cash. MicroStrategy now holds 214’246 BTC with an average buy price of $35’160 per Bitcoin. The stock of MicroStrategy reached a low on Tuesday afternoon and saw an increase of 34% in a matter of two days.

The Bitcoin spot ETFs saw a second day with net outflows on Tuesday, with a net single-day outflow of $326 million; GBTC had an outflow of $443 million, while IBIT saw a single-day inflow of $75 million, marking one of the lowest daily inflows for BlackRock’s ETF in recent weeks.

On the TradFi side, the Bank of Japan announced its first interest rate hike in 17 years and raised its benchmark interest rate from -0.1% to 0-0.1%, ending the era of negative interest rates.

Recovery on Wednesday & post FOMC rally

As mentioned above, Wednesday morning started with lower prices in the crypto markets. The crypto markets found a bottom in the morning of Wednesday though and traded to the upside again, with Bitcoin recovering back above $67’000 early Thursday morning. Interestingly, the ETHBTC chart also found a bottom on early Wednesday morning, after trading to the downside since early March. This price action likely comes as a surprise to many, since Wednesday was not very positive when it comes to news about Ethereum. Firstly, the Bloomberg analyst James Seyffart said that the possibility of spot Ethereum ETF being approved in May has become increasingly slim, and this round is expected to be eventually rejected on May 23 because U.S. regulators seem to lack cooperation with Potential issuers such as BlackRock, Fidelity, Invesco with Galaxy, Grayscale, VanEck, 21 Shares, Ark, and Hashdex. Secondly, the news broke to the market that the U.S. Securities and Exchange Commission (SEC) is probing crypto companies in an Ethereum investigation. According to U.S. companies, the SEC seems to be waging a legal campaign to classify Ethereum as a security. Various news outlets communicated that the SEC’s probe of the Swiss-based Ethereum Foundation began shortly after the blockchain’s shift to proof-of-stake in September 2022.

On Wednesday evening, the Federal Reserve announced that it would keep its benchmark interest rate unchanged in the range of 5.25% - 5.50% for the fifth consecutive time, which was in line with market expectations. The Fed's median core PCE forecast for the end of 2024 is 2.6%, compared with 2.4% previously. Nine Fed officials expect two or fewer interest rate cuts in 2024. The U.S. equities reacted very positively to the FOMC statement, with the S&P 500 reaching a new all-time high on Thursday, trading above 5’250 points for the first time in history.

In other news, according to official announcements from Montenegro, the Court of Appeal dismissed the appeal of Do Kwon’s defenders and confirmed the High Court’s decision to extradite Do Kwon to South Korea.

While the Bitcoin spot ETFs saw the third consecutive day of net outflows on Wednesday, with a single-day net outflow of $261 million and IBIT with less than $50 million of daily inflows, BlackRock officially launched its tokenized asset fund on the Ethereum network and made a strategic investment in asset tokenization company Securitize. The fund, represented by the blockchain-based BUIDL token, will pay daily earnings to token holders. While the spot ETFs saw outflows, the CEX spot daily volumes hit over $100 billion again for the first time since November 2021. Binance is leading the spot volumes with over 40% of the volume.

Mixed price action on Thursday

While COIN reached a new yearly high on Thursday, trading just below $270, Bitcoin did not experience a lot of price action on Thursday. In the TradFi markets, Gold reached a new all-time high trading above $2’200 for the first time, only to then correct 2% to the downside, now trading around $2’160 again at the time of writing this Weekly Wrap. While Gold traded to the downside on Thursday, the U.S. Dollar Index found a bottom on Thursday early in the morning and increased by over 1%.

Thursday morning came with a little bit of a surprise for the markets here in Switzerland, as the Swiss National Bank surprisingly cut the headline interest rate by 0.25 basis points to 1.5%, making it the first central bank of a major western industrialized country to do so in the current cycle.

Bitcoin, funding rates and meme coins

At the time of writing, Bitcoin is trading just above $66’000, and DOGE has been among the best performers during the last 24 hours. Meme coins have experienced a bit of a quieter phase this week, with meme coins like WIF or BONK, for example, also trading sideways over the week. It’s interesting to see that DOGE is now showing some signs of positive price action just before the weekend. Recently, the markets have been flooded with meme coins. At the beginning of the week, the WIF NFT had been sold for roughly 1’200 ETH worth more than $4.5 million, while other market participants are speculating on a different meme coin with the name Cat Wif Bag, which allegedly is a different picture of a cat posted by the same Instagram account as the infamous Dog Wif Hat picture.

It remains to be seen how meme coins perform over the next few weeks and how this could potentially impact the whole crypto market. As of now, the funding rates for most major cryptocurrencies are rather low, meme coins included. When looking at the graphic below, one can see how BTC performed in moments when funding rates for meme coins were high during the last few weeks.

Our Take

During this week's price fluctuations and the circulation of news, the cryptocurrency market has experienced heightened levels of volatility, a trend we foresee persisting, particularly given the looming halving event in 30 days. The price shifts witnessed this week underscore the market's sensitivity to news and fundamental factors, which investors often interpret as short-term indicators. Significantly, funding rates have decreased notably, alongside a reduction in open interest, indicating that the recent market upheaval was driven less by high-risk leveraged positions and more by activity in the spot markets. Therefore, closely monitoring the spot market and its response to forthcoming news will be crucial during these ongoing volatile conditions.

The Week Ahead

Thursday, March 28, 2024

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