Directional traders betting on a rise in bitcoin's (BTC) price have faced disappointment over the past two months. The top cryptocurrency by market value has pulled back by over 16% since hitting a high of $31,000 two months ago.
Still, prices are up nearly 60% year-to-date, a stellar performance compared to Nasdaq's, Wall Street's tech-heavy index, 38% rise. The path of least resistance may be on the higher side, thanks to macroeconomic developments and other bullish tailwinds.
Dollar weakness and dwindling bond market volatility
The dollar index, which tracks the greenback's value against major currencies, fell by 1.2% to 102.30 last week, registering its third straight weekly loss. The losing streak has reversed more than 50% of the bounce seen in the preceding three weeks, which, in part, weighed over crypto prices.
"Any decline in the dollar is good for bitcoin (and vice versa). That’s why BTC and risk assets have had their strongest bull runs during DXY bear markets," crypto intelligence firm Jarvis Labs noted in a weekly blog post.
"With the Fed’s actions this week in pausing rate hikes (plus inflation cooling), it looks like the dollar’s days above 100 may be numbered," Jarvis Labs added.
The Federal Reserve (Fed) kept rates steady between 5% and 5.25% last week, pausing the 15-month rate hike cycle that pushed the dollar higher and roiled risk assets last year. The central bank left the door open for continued rate hikes over the coming months, but analysts are not sure it will walk the talk.
"The reason that I don’t think there will be more rate hikes is that inflation is responding. Slowly, but it’s getting there, and raising rates risks adding unnecessary strain to an already fragile banking system that has barely started to process the looming damage from commercial real estate loans," Noelle Acheson, the author of the popular Crypto Is Macro Now newsletter said in the weekly recap published Saturday.
The U.S. Treasury (bond market) volatility is declining fast. That often leads to increased risk-taking in financial markets.
Data from the charting platform TradingView shows the ICE Bank of America Merrill Lynch U.S. bond market options volatility index declined nearly 10% last week, hitting the lowest since February.
Blackrock's ETF move
BlackRock (BLK), the world’s largest asset manager, filed for a spot-based bitcoin exchange-traded fund (ETF) last week, offering a positive surprise to the market battered by a steady stream of bad news over the past 12 months.
Per CF Benchmark's author Ken Odeluga, the proposed fund shows institutional appetite for bitcoin-based products remains strong in the wake of last year's horrible bear market.
"With its latest proposed fund, BlackRock is demonstrating an assessment that investor demand for Bitcoin exposure is broad enough to support a mainstream bitcoin product, offered in the regulated, convenient and familiar wrapper of an exchange-traded fund," (BlackRock plans to use the CF Benchmarks' bitcoin reference rate).
The U.S. Securities and Exchange (SEC) has rejected several applications for spot ETF, citing concerns about bitcoin price manipulation. Blackrock might succeed as the application includes a surveillance-sharing agreement, which could eliminate the risk of market manipulation.
"Either way, it is a very welcome positive development and puts further pressure on the SEC to clarify its crypto stance beyond “come in and register. The political battle around the future role of crypto markets in U.S. financial innovation is getting heated but is far from burning out," Acheson noted.
Safe haven demand
Earlier this month, the SEC sued leading crypto exchanges Binance and Coinbase (COIN), accusing them of offering a number of alternative cryptocurrencies as unregistered securities. The lawsuits did not mention bitcoin and ether (ETH).
"The regulatory risk is mainly concentrated on altcoins investors, which has a limited impact on holders who only hold BTC and ETH," Matt Hu, CEO of crypto asset management firm Blofin wrote in a blogpost over the weekend.
"However, Once the SEC lawsuit is successful, all altcoins may be recognized as securities and need to be regulated by securities standards, which means that the trading of altcoins will be more offshore and decentralized. Moreover, liquidity will be more concentrated in BTC, ETH, and other mainstream cryptos."
Bitcoin's dominance rate has broken out of a three-year oscillation pattern in a sign of investors rotating money out of altcoins and into bitcoin.
Pseudonymous analyst The DeFi Investor voiced a similar opinion on Twitter saying, bitcoin may continue to outperform altcoins, given the breakout in the dominance rate.
CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk offers all employees above a certain salary threshold, including journalists, stock options in the Bullish group as part of their compensation.