Bitcoin surge to $72K driven by macro factors, not just spot BTC ETF inflows

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On April 6-8, Bitcoin (BTC) experienced a 7.6% rise, peaking at $72,747 during trading hours, fueling much discussion about its reasons behind this surge.

Although some might attribute Bitcoin’s price surge solely to the inflows from the Bitcoin spot ETFs, it’s essential to consider the various macroeconomic elements that likely fueled the increase in demand.

Is Ethena’s stablecoin behind Bitcoin’s surge to $72,000?

The increase in Bitcoin’s value cannot be attributed solely to the $500 million purchase of Bitcoin as collateral by Ethena stablecoin USDCe. For example, MicroStrategy’s acquisition of over $600 million worth of Bitcoin did not prevent a 13.7% price drop in the following six days. Considering that Bitcoin’s daily trading volumes surpass $10 billion, such inflows have minimal impact on the market.

The views of investors about the economy and the interest rates they demand shouldn’t be ignored. During periods when there’s more money circulating and monetary measures aim to boost spending and expansion, valuable resources tend to gain more value. This trend becomes even stronger during prolonged inflation, where wages and prices adjust to the growing supply of money.

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Jamie Dimon, the CEO of JPMorgan Chase, mentioned in a letter to shareholders that the robustness of the US economy might result in higher-than-anticipated inflation and interest rates, according to Yahoo Finance’s report. This observation partially explains why gold ETFs are trading at a premium in China as investors prepare for potential inflationary pressures due to the US’s delicate fiscal debt condition.

Eric Balcunas, a senior ETF expert at Bloomberg, pointed out that Chinese investors are eagerly seeking assets not tied to their economy or stock market, causing gold ETFs in China to trade 30% above their fair value. Additionally, the US government’s financial deficit is worsened by a $1.2 trillion budget passed on March 23 and Biden’s plan to cancel up to $20,000 of student loans for 23 million borrowers, regardless of income, intensifying worries about fiscal responsibility.

Should Bitcoin react positively to a potential economic downturn?

An argument can be made that the mentioned factors may not necessarily benefit Bitcoin. When inflation rises, people’s disposable income decreases, making it harder for them to afford purchases. Moreover, the continuous increase in US debt might lead to an economic crisis. However, it is difficult to determine how investors will respond to these events since Bitcoin’s connection with conventional assets like stocks and gold can change.

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Additionally, the heightened trade conflict between the U.S. and China may have fueled the growing demand for both gold and Bitcoin. Strikingly, the price of gold hit an all-time high of $2,354 on April 8, which was simultaneous with the US Treasury 2-year yield reaching its highest point in over four months at 4.79%. Normally, gold’s worth decreases when investors prefer the returns from bond investments; however, this typical trend did not materialize during this recent increase.

On April 8, Janet Yellen, the US Treasury Secretary, revealed that the administration was considering imposing tariffs on subsidized Chinese energy items, such as solar panels, lithium-ion batteries, and electric vehicles. She added that other countries might also think about imposing trade barriers against China according to CNBC’s reports.

In the current situation, the reason Bitcoin’s price reached $72,000 on April 8 could be due to investors looking for protection against economic instability around the world and the potential consequences of U.S. economic stimulus packages, instead of random and unstable investments from certain Bitcoin buyers.

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2024-04-09 01:18