Bitfinex Alpha | Solid Floor Established for Bitcoin, but What Macro Gives It Can Take Away

Bitcoin achieved its highest daily close last week since April 12th. Following a softer-than-expected Consumer Price Index (CPI) inflation report, BTC was up 7.54 percent on the day and up 8.7 percent on the week. Further supporting the price have been exchange outflows amounting to 55,000 BTC, indicating supportive market sentiment and reinforcing our view that a bottom for the Bitcoin price has been reached.

Bitcoin Exchange-Traded Funds (ETFs) also saw net inflows of $948.3 million over the past week, reversing recent weeks of outflows as systematic investment plans and passive demand act to firm up the price. The total flows into Bitcoin ETFs, since their inception at the start of the year, now amount to $12.6 billion, with even the Grayscale Bitcoin Trust (GBTC) seeing reduced outflows. This trend suggests increased confidence in Bitcoin’s stability, particularly as long-term holders maintain their positions and “new whales” accumulate BTC around the $60,000 mark, establishing it as a significant on-chain support level.

Even short-term holders (STH), whose portion of the supply has increased from 19 percent at the beginning of the year to 26.1 percent currently have an average cost basis of approximately $61,046, making this an essential level to maintain to avoid triggering sell-offs. This is an important cohort to watch, though, as STHs and ETF buyers seem to be quick to sell if prices fall below their acquisition cost.

In the macroeconomy, it was the CPI report for April that triggered the market enthusiasm last week. The report indicated some welcome signs of disinflation were becoming evident, with a 0.3 percent month-on-month (MoM) increase and a 3.4 percent increase year-on-year (YoY). These figures, slightly lower than March, indicate easing inflationary pressures, driven mainly by stable shelter costs and decreased retail sales. However, the Producer Price Index for April rose by 0.5 percent due to higher service costs, suggesting persistent inflation.

The housing market and manufacturing sector also continue to face challenges. Builder sentiment dropped due to high mortgage rates, while industrial production stagnated. The National Association of Home Builders Index fell to 45, and housing starts and permits were below estimates. Manufacturing was stagnant, with a notable two percent decline in motor vehicle production.

The Conference Board’s Leading Economic Index also fell by 0.6 percent, signalling softer economic conditions ahead. Despite recent disinflation, high inflation and rising debt continue to strain the economy. While a rate cut could be possible by September, the Federal Reserve remains cautious, prioritising inflation control over stimulating growth in the short term.

In terms of news in the crypto sphere, Türkiye has introduced a legislative proposal to regulate crypto asset transactions. The bill, overseen by the Capital Markets Board, includes a licensing system for crypto firms and expanded regulatory oversight. 

On May 16, 2024, Pump.fun, a memecoin launchpad, experienced a $1.9 million exploit, allegedly by a former employee using flash loans. The breach led to a temporary halt in trading, and the platform restored affected liquidity pools within 24 hours. 

The US Securities and Exchange Commission also faces imminent deadlines for Ether ETF applications from VanEck and ARK on May 23rd and 24th, respectively. Approval appears unlikely due to the complexities of Ethereum’s technology and ongoing legal uncertainties. Judging by history, the SEC is unlikely to approve unless there is judicial intervention, as there was with Bitcoin ETFs. Market pessimism is evident, with the Grayscale Ethereum Trust trading at a significant discount. The SEC’s decisions could set important precedents for other digital assets in public markets.

Have a good trading week!

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