Bitcoin surged past $72,000 for the first time, marking a sixth consecutive day of gains. This upward momentum has driven gains for the year to nearly 70%, propelled by significant inflows into US exchange-traded funds. Despite Bitcoin’s surge, experts are expecting a short-term liquidity crisis looming on the horizon. Here’s why?
In a recent report, Coinbase highlighted potential challenges for cryptocurrency markets in the near term, despite Bitcoin reaching new all-time highs. Liquidity might be affected by quarter-end rebalancing, says Coinbase. Will the upcoming halving event keep the largest cryptocurrency in a tight range until next month?
According to analysts David Duong and David Han, positive factors like spot ETF inflows are likely to encounter macro and technical headwinds in the coming weeks.
One significant factor contributing to the uncertainty is the expected expiration of the Bank Term Funding Program (BTFP) by the Federal Reserve on March 11. While this may eliminate an arbitrage opportunity for banks, it could reintroduce vulnerabilities into the financial system.
Furthermore, Coinbase notes a potential liquidity constraint due to decreased cash reserves among fund managers and quarter-end rebalancing. As a result, they anticipate Bitcoin to trade within a tight range until the upcoming Bitcoin halving event in mid-April, which will halve mining rewards.
The report suggests that despite these challenges, U.S. spot bitcoin ETFs continue to play a significant role in supporting bitcoin demand. However, the authors anticipate that these support drivers will encounter obstacles, leading to bitcoin trading within a narrow range until the next significant event – the bitcoin halving in mid-April.
Moreover, the report delves into the evolving influence of exchange-traded funds (ETFs) on Bitcoin’s dynamics. ETFs, currently holding nearly triple the Bitcoin quantity compared to miners, introduce a novel element, complicating predictions based on historical cycles.
Interestingly, Coinbase notes that the rise of exchange-traded funds has altered bitcoin’s market dynamics, making it less predictable to study previous halving cycles. The report highlights that the cumulative net growth in BTC held by ETFs has surpassed that generated by miners by almost threefold, indicating a shift in market influence.
In the meanwhile, Coinbase shares have surged by over 80% in the past month, driven by a nearly 50% rally in Bitcoin’s price during the same period.
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