Bitcoin rallies 80% this year, can it keep going? – Crypto News
August 9, 2023 12:27 pm
The world’s oldest cryptocurrency has risen by almost 80% this year, boosted by the Fed’s liquidity injections to deal with the banking crisis, and hopes that US regulators will soon approve an ETF that tracks spot Bitcoin prices. That could be a huge event for crypto markets, although there are also risks, as liquidity conditions seem to be tightening.
Riding the liquidity wave
It’s been a great year for crypto assets so far. While crypto prices are still far below their record highs, there has been a steady recovery in the digital currency market, which has been fueled by several elements.
Chief among those was the episode in the banking sector back in March. With several regional US banks on the brink of collapse, the Fed was forced to intervene and inject liquidity into the banking system in an attempt to stop the bleeding.
Liquidity flows are infinitely important for cryptocurrencies. The logic is that if new money is flowing into the financial system, it ultimately incentivizes investors to take on more risk and thereby finds its way into the riskiest assets, such as equities and crypto.
As a testament to this dynamic, there is a striking correlation between proxies of US liquidity flows and Bitcoin prices.
Blackrock enters the chat
Another factor behind the stunning crypto rally this year was the interest expressed by enormous investment institutions such as Blackrock and Fidelity, both of which filed applications to launch an exchange-traded fund (ETF) that tracks spot Bitcoin prices.
The top US financial watchdog – the Securities and Exchange commission – has already approved ETFs that track Bitcoin futures contracts, but has rejected every application of ETFs tracking spot prices. Behind this refusal lie concerns that the spot Bitcoin market is vulnerable to market manipulation or outright fraud.
Nonetheless, the fact that institutions as credible as Blackrock – the world’s largest asset manager – have filed their own applications has been taken as a signal that a potential approval is drawing closer.
If such an ETF is approved, it would likely increase demand for Bitcoin by allowing funds and other investment managers to add some crypto exposure through traditional and regulated channels such as ETFs. Even if these players add a miniscule amount of Bitcoin to their large portfolios, it could still be a huge event, as crypto markets are quite small.
As a result, traders have attempted to front-run this ETF approval, something visible by the sharp rally in Bitcoin prices in mid-June, when the Blackrock news broke. Indeed, that was a reversal point for prices, snapping a two-month selling wave.
What’s next?
Looking ahead, whether this spot Bitcoin ETF is approved will likely be the main catalyst for prices, as it would open the door for more ‘vanilla investors’ to own crypto. An eventual approval seems likely, otherwise seasoned investors like Blackrock or Fidelity would probably not bother.
From a chart perspective, Bitcoin seems to have formed a minor double bottom formation this month at $28,600, which is a bullish pattern. That said, a clear move above the $31,800 top is required to signal a resumption of the prevailing uptrend.
From a liquidity perspective though, there isn’t much to celebrate, as those money injections back in March were a one-off event. The Fed continues to drain liquidity via its quantitative tightening program and the Treasury will add fuel to this process with the planned increases in its bond auctions.
Therefore, conflicting forces could pull Bitcoin in opposite directions moving forward, and the battle might be decided by which of these forces is stronger. That’s where the technicals come in, as a break either above $31,800 or below $28,600 will likely reveal the next directional wave.
The world’s oldest cryptocurrency has risen by almost 80% this year, boosted by the Fed’s liquidity injections to deal with the banking crisis, and hopes that US regulators will soon approve an ETF that tracks spot Bitcoin prices. That could be a huge event for crypto markets, although there are also risks, as liquidity conditions seem to be tightening.
Riding the liquidity wave
It’s been a great year for crypto assets so far. While crypto prices are still far below their record highs, there has been a steady recovery in the digital currency market, which has been fueled by several elements.
Chief among those was the episode in the banking sector back in March. With several regional US banks on the brink of collapse, the Fed was forced to intervene and inject liquidity into the banking system in an attempt to stop the bleeding.
Liquidity flows are infinitely important for cryptocurrencies. The logic is that if new money is flowing into the financial system, it ultimately incentivizes investors to take on more risk and thereby finds its way into the riskiest assets, such as equities and crypto.
As a testament to this dynamic, there is a striking correlation between proxies of US liquidity flows and Bitcoin prices.
Blackrock enters the chat
Another factor behind the stunning crypto rally this year was the interest expressed by enormous investment institutions such as Blackrock and Fidelity, both of which filed applications to launch an exchange-traded fund (ETF) that tracks spot Bitcoin prices.
The top US financial watchdog – the Securities and Exchange commission – has already approved ETFs that track Bitcoin futures contracts, but has rejected every application of ETFs tracking spot prices. Behind this refusal lie concerns that the spot Bitcoin market is vulnerable to market manipulation or outright fraud.
Nonetheless, the fact that institutions as credible as Blackrock – the world’s largest asset manager – have filed their own applications has been taken as a signal that a potential approval is drawing closer.
If such an ETF is approved, it would likely increase demand for Bitcoin by allowing funds and other investment managers to add some crypto exposure through traditional and regulated channels such as ETFs. Even if these players add a miniscule amount of Bitcoin to their large portfolios, it could still be a huge event, as crypto markets are quite small.
As a result, traders have attempted to front-run this ETF approval, something visible by the sharp rally in Bitcoin prices in mid-June, when the Blackrock news broke. Indeed, that was a reversal point for prices, snapping a two-month selling wave.
What’s next?
Looking ahead, whether this spot Bitcoin ETF is approved will likely be the main catalyst for prices, as it would open the door for more ‘vanilla investors’ to own crypto. An eventual approval seems likely, otherwise seasoned investors like Blackrock or Fidelity would probably not bother.
From a chart perspective, Bitcoin seems to have formed a minor double bottom formation this month at $28,600, which is a bullish pattern. That said, a clear move above the $31,800 top is required to signal a resumption of the prevailing uptrend.
From a liquidity perspective though, there isn’t much to celebrate, as those money injections back in March were a one-off event. The Fed continues to drain liquidity via its quantitative tightening program and the Treasury will add fuel to this process with the planned increases in its bond auctions.
Therefore, conflicting forces could pull Bitcoin in opposite directions moving forward, and the battle might be decided by which of these forces is stronger. That’s where the technicals come in, as a break either above $31,800 or below $28,600 will likely reveal the next directional wave.
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