Bitcoin above $50,000 for the first time since 2021

This week, the start of the Chinese Year of the Dragon coincided with fireworks in the Bitcoin market. The price surged above $50,000 in a short span, marking the first time in two years. What's behind this? That, and more, is explored in this Weekly!

This Weekly in brief:

• Market: Bitcoin's price climbed above $50,000 this week, putting an end to a 21% correction since the peak on January 11, shortly after ETF trading began.
• News: For twelve consecutive days, American bitcoin funds have been reporting positive gains. This streak is described as exceptional and undervalued by ETF specialists.
• Behind the Scenes: Marcel Burger, Chief Investment Officer at Amdax, attended the BCNL meetup last week to discuss the future of digital assets in Web3. We reflect on a successful evening filled with intriguing insights.

Market update

On January 11, the day of the launch of spot bitcoin ETFs, the price of bitcoin surged to $49,000. This marked the culmination of a fantastic fourth quarter during which the price soared by 90%. However, it also signaled the beginning of a much-needed correction.

In just over a week and a half, the price plummeted by 21% to a low of $38,500 on January 23. This 21% drop appears to be characteristic of this market cycle. In 2023, we witnessed three larger corrections in March, June, and August, all ranging between 20% and 22%. Previous bull markets often saw corrections exceeding 30%.

In the days following January 23, the price rebounded to around $42,500, the midpoint of the price range where bitcoin had spent most of December and January. It traded sideways for a while until suddenly surging on Monday, February 5, reaching $48,000 within a few days.

There's no direct cause for this surge in the form of a news event or similar occurrence. The most probable explanation is a continuous influx of new capital into American ETFs acting as the driving force. Just last week, the number of bitcoins held by these funds increased by 26,000 units, equivalent to a rise of over a billion dollars.

On Monday, February 12, the price began around $48,000, but in the afternoon, we witnessed a rapid ascent of a thousand dollars per hour, surpassing $50,000. For the first time since December 2021, we see this five-figure milestone displayed on the boards, and this time without an overheated market and hype among individuals!

Between $48,000 and $49,000, there are several important price levels. Here, we find the peak of March 28, 2022, at $48,250 (A), the peak of January 11, 2024, at $49,000 (B), and the beginning of the golden pocket at $48,500 (C). We've marked this area in the chart below.

In previous bitcoin market cycles, a convergence of prices at a similar level formed a solid barrier where the price remained below for months, only breaking above after the halving. This suggests that we would like to see more evidence that the market truly accepts the price above $49,000 before concluding.

For instance, we would like to see a weekly close above the mentioned threshold, or a test of that level as support, along with increasing prices accompanied by above-average trading volume. This prevents us from mistaking a genuine breakout for a random spike.

If it turns out that this breakout above $49,000 is sustainable, then the path to the all-time high from November 2021 at $69,000 would be open for the coming months. This would be much earlier in the market cycle compared to previous times. However, most crypto investors are unlikely to have any issue with that!

News overview

The bullish momentum of bitcoin is partly fueled by American bitcoin funds, whose managed assets have been growing for twelve consecutive days. An impressive streak, especially for those accustomed to the dynamics of traditional financial markets. "It's truly unusual to see new ETFs experiencing inflows every day," writes Matt. "Very unusual and undervalued," confirms Eric.

On Friday alone, over half a billion dollars flowed into the ETFs. Only on the first day was the inflow higher. On Friday, only $51.8 million exited the Grayscale fund. Never before has the outflow been so low. The BlackRock fund (IBIT) now holds $4.13 billion worth of bitcoin, with Fidelity (FBTC) following closely at $3.27 billion.

"I can’t explain to you how ridiculous this is," writes Nate Geraci, founder of the ETF Institute, about these figures. You can assume that bitcoin is on the agenda of every Wall Street manager.

Now that the launch of spot bitcoin ETFs is behind us, attention is slowly shifting to the next significant milestone we are facing this year: the halving. In April, the subsidy miners receive for their work will be cut in half at once.

"This time it's truly different," says Grayscale about it. Typically, the halving presents revenue challenges for miners, but now we anticipate a different dynamic, writes the esteemed fund. Grayscale cites three reasons for this: miners have been able to financially prepare themselves well, on-chain activity is high, and the market structure is constructive due to the functioning of the ETFs.

Other news:

• Ethereum will receive its next upgrade on March 13th. Ethereum developers decided this during a meeting last Thursday. The upgrade, named Dencun, aims to make it much more efficient to store data on Ethereum, thereby reducing some transaction costs. Dencun has already been successfully rolled out on all three Ethereum test networks. Last year in April marked Ethereum's last major upgrade.
• Last quarter, MicroStrategy added 31,755 BTC to its bitcoin reserves. The company now holds a total of 190,000 BTC, valued at $9.1 billion. MicroStrategy paid an average of $31,224 per bitcoin. At the time of writing, the company is sitting on a profit of $3.2 billion. In its most recent quarterly report, MicroStrategy refers to itself as a 'bitcoin development company,' indicating its focus on finding ways to promote the global use of bitcoin.
• Thailand eliminates taxes on profits from crypto trading. Earlier, it also removed VAT on crypto transactions to and from third parties. The Thai Ministry of Finance aims to position the country as a crypto hub. Last year, the regulator lifted the investment cap of 300,000 baht (approximately $8,400) for consumers investing in crypto assets.