Analyzing Bitcoin's Surge to $72,000: Beyond ETF Inflows and Macroeconomic Factors
Summary:
Bitcoin's rise of 7.6% between April 6th and 8th, reaching a high of $72,747, sparked speculation over the cause. While inflows from Bitcoin exchange-traded funds could be a factor, broader macroeconomic elements likely contributed substantially to the price rally. This includes investor perspectives on the economy and capital costs, stimulated by increased liquidity and monetary policies, as well as the resilience of the US economy potentially leading to stickier inflation. Additionally, trade tensions between the U.S. and China are likely influencing investment behaviours. These varied factors highlight the complexity behind Bitcoin's price fluctuations.
Between April 6th and April 8th, Bitcoin (BTC) saw a rise of 7.6%, hitting a daily high of $72,747. This led to widespread speculation over what caused this significant increase. While some might argue that Bitcoin's increase is primarily due to inflows from the cash-based Bitcoin exchange-traded funds (ETF), this belief tends to neglect the broader reasons for buyers boosting the price. More likely, it was a variety of macroeconomic factors that spurred Bitcoin's recent price increase.
Does Ethena’s Stablecoin Hold Responsibility for Bitcoin’s Rise to $72,000?
The argument that Bitcoin's price hike was solely caused by Ethena's stablecoin USDCe purchasing $500 million in Bitcoin as collateral seems oversimplified. For example, MicroStrategy bought 9,245 Bitcoin, worth more than $600 million on March 19, but this didn't stop a 13.7% fall in Bitcoin's price over the next six days. For Bitcoin, with daily spot volumes regularly exceeding $10 billion, such influxes are relatively insignificant.
The impact of investors' views on the economy and capital costs should not be overlooked. Increased liquidity and consumption-stimulating monetary policies often favor scarce assets. This trend is further amplified during periods of sustained inflation when salaries and commodity prices rise in line with money supply increases.
Recent comments by Jamie Dimon, CEO of JPMorgan Chase, appearing in a shareholder letter suggest that the US economy's resilience could "lead to more persistent inflation and higher rates than markets expect," reported by Yahoo Finance. This perspective helps to partly explain why Chinese investors are purchasing gold ETF instruments at premium prices to safeguard against inflation amidst US's unstable fiscal debt.
Eric Balcunhas, Senior ETF Analyst at Bloomberg, highlighted that Chinese investors yearn to "buy assets unlinked to their own economy/stock market," pushing gold ETFs to trade 30% above their fair value. Further burdening U.S. fiscal deficit are the $1.2 trillion spending package approved on March 23 and President Biden's proposal to write-off up to $20,000 of student loans for 23 million borrowers, amplifying concerns over fiscal health.
Will Bitcoin React Positively to a Potential Economic Downturn?
The above factors don't automatically bode well for Bitcoin since rising inflation reduces disposable incomes and escalating US debt may trigger an economic recession. Predicting investor reactions under such circumstances proves difficult due to Bitcoin's erratic correlation with traditional assets like stocks and gold.
Simultaneously, brewing trade tensions between the U.S. and China might bolster interest in gold and Bitcoin. Crucially, gold prices hit a record $2,354 on April 8, the same day the U.S. Treasury 2-year yield reached its four month peak at 4.79%. Usually, gold value falls when investors are attracted to yields from fixed-income investments, but this pattern was strikingly absent in the recent increase.
On April 8, U.S. Treasury Secretary, Janet Yellen, revealed that the U.S. administration is considering potential tariffs on Chinese government subsidized green energy products such as solar panels, lithium-ion batteries, and electric cars. As reported by CNBC, Yellen suggested that other countries might similarly impose trade restrictions on China.
Considering these contexts, Bitcoin's surge to $72,000 on April 8 might be more attributable to investors seeking protection from the declining state of global economy and the potential fallout from U.S. fiscal stimulus programs, rather than erratic Bitcoin cash flows from certain investors.
This news article doesn't provide any investment advice or suggestions. Every investment or trade decisions involve risk, and readers should make their own detailed investigation before deciding.
Published At
4/9/2024 1:00:00 AM
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