Bitcoin surpassed $72,000 for the first time, marking its sixth straight day of gains. This upward momentum has pushed his gains to nearly 70% this year, thanks to large inflows into U.S. exchange-traded funds. Despite Bitcoin's meteoric rise, experts predict a short-term liquidity crisis is imminent. Here's why:
Could Bitcoin Price Fall Before Halving?
In a recent report, Coinbase highlighted potential challenges for the cryptocurrency market in the short term, despite Bitcoin hitting new all-time highs. Coinbase says liquidity may be affected by quarter-end rebalancing. Will the upcoming halving event keep the biggest cryptocurrencies in a tight range until next month?
Positive factors such as spot ETF inflows are likely to encounter macro and technical headwinds in the coming weeks, according to analysts David Duong and David Hung.
One important factor contributing to the uncertainty is that the Federal Reserve's Bank Term Financing Program (BTFP) is expected to end on March 11th. While this could eliminate arbitrage opportunities for banks, it could reintroduce vulnerabilities into the financial system.
Additionally, Coinbase points to potential liquidity constraints due to reduced fund managers' cash reserves and quarter-end rebalancing. As a result, we expect Bitcoin to trade within a narrow range until the Bitcoin halving event in mid-April, when mining rewards will be halved.
Despite these challenges, the report suggests that US spot Bitcoin ETFs continue to play an important role in supporting Bitcoin demand. However, the authors predict that these support drivers will encounter failures, resulting in Bitcoin trading within a narrow band until the next significant event, the Bitcoin halving in mid-April. .
Additionally, the report also delves into the evolving impact of exchange-traded funds (ETFs) on Bitcoin trends. ETFs currently hold nearly three times as much Bitcoin as miners, but new factors have been introduced that complicate predictions based on historical cycles.
ETF unpredictability: a new market element
Interestingly, Coinbase points out that the rise of exchange-traded funds has changed Bitcoin's market dynamics, making studying previous halving cycles less predictable. The report highlights that the cumulative net growth rate of BTC held by ETFs has exceeded the net growth rate generated by miners by almost three times, indicating a shift in market power.
Meanwhile, Coinbase stock has soared more than 80% in the last month, driven by a nearly 50% rise in the price of Bitcoin over the same period.
