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According to Bitcoin’s bulls, the time to vanquish crypto detractors for good is now finally within reach, aided by the growing clarity on the regulatory front and boosted by accelerating institutional adoption. For months, the bears held sway over the broader narrative, harping on Bitcoin’s price weakness to show that the world’s premier cryptocurrency had no utility whatsoever in the greater scheme of things. Well, just look at how the tables have turned now!
At the time of writing, Bitcoin is up an astonishing 38 percent over the past month. So far this year, the world’s preeminent cryptocurrency is up 124 percent. Bitcoin is now about to flirt with the $40,000 price level, having moved past the price slump unleashed by the collapse of Terra’s stablecoin in 2022.
Bitcoin’s Metrics Related to the On-Chain Activity and the Derivatives Market Spell Buying Fervor
Bitcoin’s Realized Price metric is a relatively accurate approximation of the average cost basis of the market, which can then be used to gauge whether the vast majority of Bitcoin traders are in profit or loss. As is evident from the snippet above, Bitcoin’s Realized Price currently stands at around the $20,000 price level. Yet, the cryptocurrency’s actual price is nearly double the market’s average cost basis.
What’s even more extraordinary, despite the vast cohort of Bitcoin traders currently in profit, there is a distinct lack of selling or profit-taking, highlighting the investors’ conviction in further price gains. Consider the above snippet that illustrates Bitcoin’s liquidations. Notice the complete lack of any significant liquidation of long futures positions vs. the heavy unwinding of shorts in recent weeks.
Next, consider Bitcoin’s funding rate which is currently in a distinct positive territory. As a refresher, a positive funding rate indicates a plethora of long positions relative to short ones. This is one of the primary mechanisms that is used to ensure that the price of Bitcoin’s perpetual futures contracts converges with its spot price. As the buying pressure on the futures contracts increases and their price moves past Bitcoin’s spot price, the funding rate turns positive and penalizes longs in favor of shorts to bring the market back into balance.
ETF Pump and the Halving Event: a Sure-Shot Bet on New All-Time Highs
We’ve been stating ad nauseum that the two biggest price catalysts for Bitcoin are its upcoming halving event as well as the increasing likelihood of the SEC approving some of the first spot Bitcoin ETFs in the US.
A spot Bitcoin ETF would, in theory, make it extremely convenient for investors to acquire exposure to Bitcoin without the pitfalls associated with futures-based ETFs, which include roll-over losses in futures contracts that are usually in contango – a typical situation where contracts for the months ahead are usually priced at a premium to the spot price, leading to progressively expensive roll-overs as the front-month contract expires and the next one takes its place. Over time, should contango persist, this mechanism leads to higher costs and ETF underperformance relative to the spot price. Due to this phenomenon, the futures-based Bitcoin investment avenues are not conducive to large-scale institutional adoption.
New Research note from me today. We still believe 90% chance by Jan 10 for spot #Bitcoin ETF approvals. But if it comes earlier we are entering a window where a wave of approval orders for all the current applicants *COULD* occur pic.twitter.com/u6dBva1ytD
— James Seyffart (@JSeyff) November 8, 2023
We have already entered the typical window for the SEC’s approval of such investment vehicles, as explained in the above X post by Bloomberg analyst James Seyffart. Nonetheless, the process could still take weeks, given the need for the SEC to approve the issuers’ 19b-4 filing as well as the pertinent Form S-1s.
💥💥💥 JUST IN: BlackRock iShares Ethereum Trust registered in Delaware!
“An ETH ETF will create an interesting arbitrage between proof-of-work (BTC) & proof-of-stake (ETH). Properly managed ETH ETF short positions will perpetually generate profits to roll into the BTC… pic.twitter.com/oJwELb8JIr
— Crypto News Alerts 🔥🎙 (@CryptoNewsYes) November 9, 2023
Of course, it’s not just Bitcoin. Apparently, an Ethereum Spot ETF is also in the works. This development, should it materialize, would further bolster the perception of strengthening regulatory oversight of the crypto sector, giving institutions additional confidence in their bets in this nascent sphere.
K33 Research recently estimated that the launch of spot Bitcoin ETFs could attract around 100,000 BTC in institutional investments, bolstered by the increased regulatory clarity and acceptance as well as the overall ease of investment. Concurrently, Deutsche Digital Assets noted in a recent analysis that a 1 percent increase in the Assets Under Management (AUM) of various Bitcoin-related Exchange-Traded Products (ETPs) on a week-to-week basis has pumped up the weekly price of Bitcoin by an average of 8.7 percent. We combined these two analyses in a recent post to infer that Bitcoin’s ETF price pump can easily push its price to the $63,000 price level, constituting a new all-time high.
Of course, this is just one side of the story. As most of our readers would know by now, Bitcoin is slated to undergo a halving event in April 2024, when the reward for mining BTC is cut in half in a repetitive 4-year cycle, heralding a fierce disinflationary wave in the process. In its run-up to the halving events of the past, Bitcoin has typically entered into a bullish phase that is then supercharged once the mining reward cuts are instituted.
Microstrategy’s Michel Saylor beautifully explained this concept during the 2023 Australia Crypto Convention on the 10th of November, when he noted:
“So instead of a billion dollars of Bitcoin available for miners each month, it will be half a billion. It’s pretty unprecedented that you would go from a supply and demand balance of maybe $15 billion of organic demand and $12 billion of organic supply. What happens when one doubles, and the other one cuts in half ? the price is going to adjust up.”
Essentially, Bitcoin is slated to undergo its halving event at a time when the upcoming ETF-driven onslaught of institutional demand is all but guaranteed to create scarcity, pushing the cryptocurrency’s price toward the proverbial stratosphere. As such, Saylor remains confident that Bitcoin will reach a seven-figure price in the next few years:
“So if you think about it like that, you just say, well […] now we’re going to double we’re going to double again, we’re going to double again, and we’re going to double again, that coin is going to continue to progress to a million dollars a coin, $2 million a coin, $5 million a coin, $10 million a coin.”
Finally, as we noted in a dedicated post a few days back, Matrixport declared toward the end of October that the fifth bull market for Bitcoin was now officially underway. The crypto financial services provider believes that the ongoing bull market began on the 22nd of June, 2023, and will pump the price of the world’s apex cryptocurrency to $125,000 by the end of 2024, driven primarily by institutional adoption flows.