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With the two main drivers of Bitcoin fading, traders who were previously bullish on the world's largest market capitalization cryptocurrency seem to have reduced their bullish bets.
Data from CryptoQuant shows that on April 19th, the Bitcoin funding rate—the premium traders need to pay when opening new long positions on the perpetual futures market for cryptocurrencies—turned negative for the first time since October 2023. This metric highlights a slowdown in demand for Bitcoin, at least in the short term, following the "halving" event and a batch of US Bitcoin spot ETFs pushing Bitcoin to record highs.
In recent weeks, the net inflow scale of these Bitcoin spot ETFs has decreased, and the highly anticipated "halving" event has had minimal impact on Bitcoin trading prices in the past week. The "halving" is a quadrennial event in the Bitcoin market that significantly reduces the rewards received by miners who secure the Bitcoin blockchain and greatly reduces the supply of new tokens in the market.
Bitcoin reached a historical peak of $73,798 in March, but has since corrected by nearly 13%, hovering around $63,200 on Thursday. Global cryptocurrency buyers have cooled their enthusiasm for the original cryptocurrency, partly due to increasing risk aversion related to tensions in the Middle East and the expectation that the Federal Reserve may not cut interest rates this year, which has undermined the risk appetite of the cryptocurrency market.
Some cryptocurrency analysts believe that the ongoing decline in expectations of a Fed rate cut may temporarily lead investors to choose traditional assets such as high-yield, low-risk government bonds, which could trigger significant volatility in the cryptocurrency market. The negative impact of the declining expectations of a Fed rate cut on the cryptocurrency market is likely. Undoubtedly, the long-term maintenance of high interest rates by the Fed means that the risk-free rate of return in the denominator of the DCF model remains high, which is closely related to the strong bearish sentiment towards cryptocurrencies such as Bitcoin and the overall downward trend in investors' risk appetite for cryptocurrencies.
When evaluating assets, investors traditionally attach great importance to the Fed's interest rate decisions and the mechanisms for managing expectations for Fed monetary policy. When market expectations for falling interest rates are on the rise across the board, funds are expected to flow into high-risk, high-yield assets, and the holding value of traditional low-risk assets such as government securities is typically significantly eroded, making assets such as Bitcoin and other cryptocurrencies more attractive.
In March, the Bitcoin funding rate reached its highest point in three years, indicating that the bullish momentum in the crypto market was overheated, but as of Tuesday, the rate had dropped below zero.
Vetle Lunde, an analyst at K33 Research, said that it is absolutely unusual for the funding rate to remain below neutral for 11 consecutive days, and there may be a large proportion of leveraged bets after previous rate declines. "In this regard, the length attribute of this wave of discounted trading may point to further consolidation or pullback in Bitcoin prices," he added.
Signal of Shrinking Demand for US Bitcoin ETFs
It is worth noting that as the funding rate declines, the net inflow of Bitcoin spot ETFs in the US market has also been decreasing.
According to the latest statistics from financial institutions, the net inflow scale of 11 US market-issued Bitcoin spot ETF products so far this month has been $170 million, far below the approximately $4 billion during the same trading days in March.
The scale of open interest in the Bitcoin futures market of the Chicago Mercantile Exchange Group (CME Group) has also dropped by about 18% from its historical high point, indicating that some US investment institutions have wavered in their Bitcoin-related allocation exposure and hedging interest.
As the cryptocurrency market searches for new upward momentum, all eyes are on Hong Kong, where it is expected to soon launch a batch of Bitcoin spot ETFs in its own market. However, whether they can attract even a small fraction of the market demand enjoyed by US issuers remains to be seen. |
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Post time 2-5-2024 22:21:22