Bitfinex Alpha | BTC Resilient, but Watch Out for Macro

Despite a generally positive week for Bitcoin, stronger-than-expected US jobs data caused a price dent on Friday, raising concerns about the timing of potential rate cuts. Robust spot ETF flows have kept Bitcoin resilient, with now 20 consecutive trading days of net inflows; however,  the inability to push past range highs is a short-term negative. High open interest on BTC and altcoin perpetual futures, alongside high funding rates, indicates leveraged positions that might lead to future price corrections.

Indeed, while short-term Bitcoin holders have shown increased activity, with holdings rising from 2.2 million BTC in January to over 3.4 million BTC by mid-April, this surge, driven by buying of spot Bitcoin ETFs, introduces sensitivity to price volatility. 

As we have reported in earlier editions of Bitfinex Alpha, however, long-term Bitcoin holders continue to exhibit strong market conviction, with recent data showing a halt in any selling from this cohort. BTC, which has been held for over a year, is currently inactive. In addition, Bitcoin “whales” (entities holding more than 1,000 BTC) are accumulating at a rate reminiscent of the pre-2020 bull run, reaching historical balance highs.

Crypto asset prices continue to be impacted by macroeconomic developments. Newly released April data on job openings in the US revealed a sharp drop, indicative of a slowing economy; however, May employment data contradicted this trend, with an unexpected surge in labour demand, casting doubt on the likelihood of a near-term rate cut.

This now puts the US out of kilter with other central banks, such as the European Central Bank and the Bank of Canada, who started cutting rates last week to foster recovery and growth.  

Adding to the complex economic landscape, the US services sector also rebounded in May, reversing April’s contraction, with business activity reaching its fastest pace in three years. This resilience complicates the Fed’s decision-making, as they balance signs of economic weakness with areas of significant strength.

The US economy’s strength and adaptability could enable it to thrive even with high interest rates, driven by robust labour demand and rising wages, supporting continued economic growth and solid consumer spending. Nevertheless, there is a risk that prolonged high interest rates could stifle economic activity, reduce investment, and slow job creation, potentially leading to a downturn.

In the latest crypto news, New York Attorney General Letitia James is taking legal action against AWS Mining and NovaTech for allegedly running crypto pyramid schemes. These companies and their promoters promised high returns but operated as pyramid and Ponzi schemes, misleading investors.
Meanwhile, ProShares has filed with the SEC to list a spot Ethereum ETF on the NYSE, with a decision expected by late July 2024. The proposal, in compliance with SEC guidelines, excludes Ether staking features, which might limit investor yield opportunities, but aligns with regulatory standards for broader market acceptance.

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