Is the surge in BTC just due to ETF?

Bitcoin prices have reached a 17-month high, the highest level since May 2022. This rally caught many people off guard, and as the "king of cryptocurrencies" steadily rose, it brought a bullish atmosphere to the crypto market. So what are the reasons for the rally? What is the subsequent development of BTC?

A previous article by veDAO Research Institute mentioned that although fake news caused the price of BTC to experience a roller coaster ride, the market sentiment is positive and the subsequent trend will be positive. In this article, veDAO Research Institute will bring the reasons related to the recent BTC rise and the analysis of the subsequent trend.

Reasons for BTC price increase

Considering the crypto market’s vulnerability to volatility, one single factor cannot be considered the sole reason for the rally. In the past few days, BlackRock’s BTC spot ETF appeared on the DTCC website, and was briefly removed and then added back, which is also considered to be one of the reasons for the rally. In addition, there are some more influential factors:

BTC halving is coming soon

There are less than 6 months until the BTC halving. The cryptocurrency community expects this event to kick off the next bull cycle. According to analysts such as Michaël van de Poppe, now (6 to 10 months before the BTC halving) is the best time to invest in altcoins, and venture capitalists can’t wait to start getting funding support.

While investors are counting the days until their investments start to appreciate, BTC miners are worried about the event. Miners’ concerns stem from the fact that the event will cause the mining reward to be halved, from 6.25 BTC per block to 3.125 BTC. But for investors, the halving event is valuable because it reduces the growth of newly mined BTC. Over time, the operating costs for miners are also increasing. Specifically, mining infrastructure has become more complex and expensive. Others complain about rising electricity costs, while US miners may face a 30% tax, which has caused more uneasiness. This is because BTC hash power (the computing power required for computer or hardware operations when solving different hashing algorithms) is mainly concentrated in the United States.

US Banking Crisis and BTC

The US banking crisis that took place in March this year turned out to be a boon for BTC and the crypto market. One of the most important reasons for this was the lack of correlation between cryptocurrencies and the US stock market. Although the banking system has been relatively stable since then, the current market conditions are once again suggesting that a similar scenario is developing.

Bank of America takes another hit

The four largest Wall Street banks in the U.S. - Citigroup (C), Morgan Stanley (MS), Goldman Sachs (GS) and Bank of America (BAC) - are now trading at their lowest levels since the banking crisis. The year-to-date performance of these banks shows that their stock prices are currently the lowest, even lower than in March this year. Citigroup's stock price has fallen 14% since the beginning of the year, and Goldman Sachs has fallen nearly 13%. Morgan Stanley's losses have exceeded these two, falling 16% so far this year, while Bank of America leads the way with a 23% drop.

Cryptocurrencies and US banks negatively correlated

While the current state of the U.S. economy does not support a bullish narrative for banks or the stock market, the story is quite different in the crypto market. Currently, BTC has a clear negative correlation with the S&P 500 and Nasdaq, at -0.8 and -0.78 respectively.

In March, as banks came under great pressure, BTC prices rose along with other cryptocurrencies, and coincidentally, BTC is also rising now. This has caused other altcoins to rise as well, pushing the market value of the entire crypto market to $1.244 trillion.

From this perspective, the losses of U.S. banking institutions are translating into profits for cryptocurrency investors, suggesting that the flow of funds into the sector is not just influenced by the U.S. However, the continued losses of banking institutions may not be the only reason for BTC’s rise.

Behind the Israeli-Palestinian conflict, US Treasury bonds and BTC

Arthur Hayes, co-founder of BitMEX, recently wrote that the current economy is being affected by a “global war,” which has catalyzed the recent sell-off of U.S. Treasuries. As Treasuries are no longer safe, investors are choosing BTC and gold as alternative investment products.

 The spread between 2-year and 30-year Treasury yields turned positive for the first time since mid-2022

Arthur Hayes elaborated on the impact that the current tensions in the Middle East may have on financial markets, noting that as the US government continues to provide military aid to Israel, this will lead to a sell-off of US Treasuries. He explained: "If you are a long-term investor in US Treasuries, the most worrying thing is that the US government does not think it is spending too much. If the US defense spending enters a ridiculous mode, there will be trillions of dollars borrowed to support the war machine, which will require the government to sell more long-term bonds to investors to absorb funds, and global distrust of US Treasuries will further increase. This is why bonds are selling and yields are rising."

As the "Israeli-Palestinian conflict" and the "Federal Reserve (FED) suspending interest rate hikes" pushed up the U.S. Treasury yield to a 16-year high, Arthur Hayes believes that when long-term U.S. Treasury bonds no longer provide security for investors, investors will seek alternatives, and the preferred assets in this context are gold and BTC. Arthur Hayes believes that the rise in BTC and gold is due to the sharp decline in long-term U.S. Treasury bonds. This is not speculation about whether the ETF is approved, but BTC's response to the high inflation caused by the future depreciation of the U.S. dollar and war. Arthur Hayes also mentioned another reason for the bond plunge. When the Fed's interest rate hike cycle comes to an end and the U.S. economy remains normal, investors no longer have more motivation to hold long-term, which will also lead to the sale of U.S. Treasury bonds.

BTC price may rise due to other factors

A group of key investors may also be one of the reasons for this rally. Whale addresses holding between 100 and 1,000 BTC have been accumulating BTC since September 21. In a month, this group's BTC holdings increased by 50,000 BTC, worth $1.7 billion; this increased their holdings from 3.85 million BTC to 3.9 million BTC.

BTC Trends

As of this writing, BTC is priced at $34,572 and could rise further as market momentum remains strong. It remains in the mid-to-high range of the market, as shown in the chart above, from the lows of early 2023 to this year’s high of $35,184.

BTC’s price doubled from the Dec. 31 close of $16,542, breaking through the 61.8% Fibonacci level of $28,067 during the rally, a key retracement level. The rally’s strong momentum also broke through the 78.6% Fibonacci level of $31,197.

Pressure from increased buying volume could push BTC prices to continue rising, with a bullish target of $35,000. In this case, the most reasonable target would be the top Fibonacci chart level of $35,184.

However, the BTC price could still see a downtrend if profit-taking sets in. In this case, BTC’s support level could be around $31,197, or more likely around $28,067. In the worst-case scenario, the price could drop to the $25,869 level.

Conclusion

As the price of BTC continues to rise, market sentiment is obviously high. It can be said that multiple factors such as the upcoming BTC halving, pressure on the US banking industry, and rising US Treasury yields have driven this round of price increases. Although there may be fluctuations in the short term, in the medium and long term, the price of BTC is in an upward channel. For investors, now is still a good time to deploy BTC. With the gradual release of the halving effect, BTC may usher in a new bull market cycle, which is worth looking forward to.