ETF Inflows Tied to Bitcoin's Projected Growth, Citi Analysts Say

Since receiving approval to be listed on January 11th, the Bitcoin ETF has garnered considerable interest from investors. In just over two months, it has continuously set new records for capital inflows.

On March 26, Citigroup analysts David Glass and Alex Saunders noted that within 75 days after the listing of the Bitcoin ETF, it saw net inflows of $11.3 billion, accounting for nearly 50% of the price volatility in Bitcoin. Since March 20, there have been consistent net outflows from the ETF, aligning with the pullback in Bitcoin prices.

Bitcoin spot and futures trading volumes have significantly increased since the launch of the ETF, with open interest in contracts also seeing a substantial rise. The initial surge in futures funding rates indicated an increased demand for leveraged crypto positions, although these rates subsequently moderated, suggesting that market conditions have returned to a more balanced state.

1. In late April 2024, the Bitcoin network is scheduled for its fourth halving event, where the block reward for Bitcoin miners will decrease from 6.25 bitcoins to 3.125 bitcoins. At this point, only 6.25% of the total Bitcoin supply will remain unmined.

Historical analysis reveals that Bitcoin's price has experienced a substantial rise following each of its halving events. Nonetheless, long-term price movements are ultimately determined by the supply and demand dynamics of the market. The halving reduces the rate at which new bitcoins are generated, thereby decelerating the supply growth. With the approval of a Bitcoin spot ETF in the U.S., interest from both institutional and retail investors is on the rise, which could potentially intensify supply-demand pressures.

2. The rise of the Bitcoin ecosystem may be another factor influencing. After its hard fork in 2017, the Bitcoin community remained relatively dormant. Despite advancements like the Lightning Network, it didn't significantly attract market interest. In contrast, Ethereum experienced rapid expansion with the surges in DeFi, NFTs, public blockchains, and layer 2 solutions. By early 2023, with the spike in usage of Ordinals—a method for embedding digital content, such as images and videos, on the Bitcoin blockchain—many new and existing protocols began to increase on Bitcoin, fueling strong development in its ecosystem.

Ordinal Minting Rate Surpasses That of Other NFTs

3. Loose monetary policy and ample liquidity often boost Bitcoin prices.On March 12, 2024, the U.S. Department of Labor reported a 3.2% YoY increase in February's CPI, surpassing both market expectations and January's 3.1%. Core CPI rose 3.8% YoY, above the anticipated 3.7% yet below January's 3.9%. February's higher-than-expected inflation data lessened the immediacy for a Fed rate cut. Still, traders predict a likely rate reduction by the Fed in June. Once the Fed begins to lower interest rates, it could signal the start of a depreciation cycle for the dollar, making assets not constrained by the traditional financial system more attractive to investors. Consequently, Bitcoin may enter an appreciation cycle.

However, some analysts do not believe that Bitcoin's upward trend can be sustained. JPMorgan analyst Nikolaos Panigirtzoglou emphasized in a previous report that the continuing open interest in Bitcoin futures and the decline in ETF flows are significant bearish signals for Bitcoin's price.

Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, also warned that retail investor enthusiasm is waning after Bitcoin spot prices hit record highs. He mentioned that many are questioning the strength of Bitcoin's price rebound and are concerned about a severe pullback if sentiment becomes unstable, potentially driving prices below $50,000.