Bitfinex Alpha | Bitcoin to Trade within a Range, but Volatility to Persist

After the significant price appreciation in March, which saw Bitcoin reaching a new all-time high (ATH), we believe we are in for a period of range trading, albeit with more volatility we have seen in similar points in the cycle.

On-chain data has indicated that Long-Term Holders (LTHs) have been selling post the ATH, albeit this is taking place on a smaller scale than seen at previous bull market peaks, and this is leading to increased volatility as previously dormant supply enters the market. Over $2.6 billion in profit is calculated to have been captured through on-chain transactions, of which 40 percent is attributed to the LTH cohort.

Further analysis, however, using UTXO Age Bands shows that buying is taking place too and represents a floor as new investors come in and existing investors increase their positions in the belief the market can go higher.

Spot Bitcoin ETFs have also become an important underpinning of the market. Positive net inflows into ETFs resumed again last week, as passive demand continues. At the current rate of inflows, BTC demand is around double the value of Bitcoin being mined. Put all these price dynamics together and we believe that we will see a ranging market in the current environment.

Against this market backdrop, the US economy continues to exhibit strength, driven by robust consumer spending, stabilising inflation, and signs of recovery across several sectors. In February, Personal Consumption Expenditures (PCE) data showed a higher-than-expected 0.8 percent increase, however, personal income growth decelerated, leading to the first drop in real disposable income in five months. In our view, this fact will intensify the pressure on the Fed to start cutting rates so as not to jeopardise economic growth.

Currently, the economy continues to demonstrate remarkable resilience. Orders for durable goods rose 1.4 percent, indicating that the manufacturing sector seems to have shrugged off the effects of a tighter monetary environment. Home prices are also rising, with the S&P CoreLogic Case-Shiller 20-city home price index reporting 6.6 percent year-over-year growth.

Further underlining its strength, the US economy’s growth rate for the last quarter of the previous year was revised up to an annualised 3.4 percent. Moreover, consumer sentiment reached its highest point in nearly three years in March, fueled by optimism that inflation pressures will continue to ease.

In recent months, the cryptocurrency industry has navigated through turbulent waters, marked by a series of legal and regulatory challenges that underscore the heightened scrutiny it faces worldwide. In a significant legal development, a New York judge has pushed forward the SEC’s lawsuit against Coinbase, while in other markets, Binance’s Russian operations encounter their own regulatory hurdles, leading to the phased shutdown of CommEx, its successor in Russia. Meanwhile, in Africa, Binance faces another kind of challenge as Nigeria accuses the exchange of tax evasion.Adding to the industry’s woes, KuCoin and its founders find themselves in the crosshairs of the US Attorney’s Office. Accused of violating the Bank Secrecy Act and operating without a proper licence, KuCoin’s indictment for bypassing US anti-money laundering regulations to launder over $5 billion signals a severe compliance failure.

Have a great trading week!

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