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Bitcoin bulls back in charge as spot ETF hopes, lower CPI data fuel rally

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(Kitco News) - Bitcoin (BTC) is looking to get back to its winning ways on Wednesday as the top crypto has bounced off Tuesday’s lows and clawed its way higher, climbing back above $37,000 near midday on a slight uptick in trading volume.

Tuesday’s selloff dropped BTC to a low of $34,770, briefly erasing the gains seen over the past week. But buyers returned in force on Wednesday as the reasons for the strong bullish showing of late remain, including the possibility of the first spot BTC ETF being approved within the next three months.

A pullback in the DXY and U.S. Treasuries has also helped put a bid under risk assets as the latest inflation data has cooled expectations of additional interest rate hikes from the Federal Reserve, prompting traders to reenter the markets.

“CPI has surprised to the downside, missing on both headline CPI (4% vs 4.1% exp) and core CPI (3.2% vs 3.3% exp),” said Greg Magadini, Director of Derivatives at Amberdata, in a note shared with Kitco Crypto. “For BTC this is fascinatingly good news. Since BTC is a non-interest-bearing asset, the higher interest rates are, the greater the opportunity cost to owning BTC is.”

Magadini noted that a “Lower CPI = Lower Rates (or at least a pause from the FED),” and said, “This should provide a tailwind to BTC holders.”

“That said, YTD BTC has been trading by its own rules,” he added. “It's rallied in response to banking turmoil and geopolitical risks. Especially in October of this year, the BTC rally occurred despite rising 10-year yields. This shows that although BTC should benefit from lower rates (in response to lower CPI prints) this isn't the main drive of BTC price action.”

Magadini said Wednesday’s recovery is due to “excitement around a spot ETF, crypto regulation, a safe haven asset, and as a response to lower rates,” and added that “Lower rates will have a longer-term effect on BTC prices, but the short-term continues to be driven by other news.”

Data provided by Coinglass shows that longs suffered the worst of this week's volatility, with nearly $110 million worth of long positions liquidated during Bitcoin’s pullback on Tuesday as compared to $18.8 million worth of liquidated short positions.

BTC total liquidation chart. Source: Coinglass

The ongoing strength of the crypto market is evidence that interest in the asset class continues to rise, with both institutional players as well as retail traders starting to increase their level of involvement.

“Both institutional and retail interest continues to grow,” said Greg Moritz, COO and co-founder of AltTab Capital. “The asset class has demonstrated staying power and resiliency with its strong historical recoveries and the recovery this year.”

Moritz said that the possible launch of a spot BTC ETF is a major tailwind for the industry as it could help break through the hesitation that many investors feel about investing in cryptocurrencies due to their unfamiliarity with the assets.

“A spot ETF is a comfortable and familiar vehicle for all classes of investors, and it solves one of the biggest challenges in crypto: keeping coins safe,” he said. “When these ETFs are approved, we expect significant capital inflow to continue, resulting in a run-up in price, particularly as this surge in demand will be occurring close to when the increase in supply is reduced by the Halving.”

The Bitcoin halving, which is anticipated to occur in mid to late April 2024, is also seen as a driving force behind the current bullish momentum.

The combination of a possible spot BTC ETF launch and the approaching halving, combined with deteriorating global financial conditions and the potential for interest rate cuts in 2024, is creating a potent mix of bullish variables that could make this bull market the biggest in Bitcoin’s history, numerous analysts have said.

So whether you are new to crypto or an experienced hodler, the consensus from analysts and experts Kitco Crypto has spoken to say it's a good time to prepare yourself for the rally ahead as it promises to be one of the most volatile, and potentially life-changing crypto bull market cycles yet.

At the time of writing, Bitcoin trades at $37,111 on Coinbase, an increase of 3.7% on the 24-hour chart.

BTC/USD Chart by TradingView

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.