Tide Capital: Is the BTC surge driven by ETFs, and why has there been no correction?

Source: Tide Capital

Abstract

The incremental funds brought by the Bitcoin spot ETF, the rapid expansion of U.S. debt, and the halving of mining output in April will further exacerbate the supply-demand imbalance of Bitcoin, making the timing and extent of market corrections quite limited.

Although ETH and most altcoins are still quite far from their historical highs, we believe that the positive cycle of off-market funds entering the market has already begun, and the significant rise of Meme coins is just an appetizer; the altcoin season is about to arrive.

It is important to note that the pressure from Bitcoin's previous highs remains, contract rates are relatively high, and there is a risk of short-term deleveraging.

Spot ETF Combined with Halving Cycle, BTC Long Bull Market Officially Kicks Off

U.S. stocks, gold, and BTC all reach new highs, market risk appetite increases

With the dual support of fiscal and economic factors, the S&P 500 index reached a historic high in January. Gold and Bitcoin followed suit, both hitting historical highs in March, with market sentiment flourishing.

In September 2023, we published a research report titled "Opportunities of Patience and Greed: BTC Short-term Holders are Selling Their Last Chips Around $26,000," at which time market trading was sluggish, and BTC was consolidating. The current surge is like a bolt from the blue. In our view, Bitcoin now is no different from then; the logic of long-term growth remains unchanged.

Looking back at the last bull market, the S&P 500 index reached a new high in August 2020, and Bitcoin began to accelerate its rise two months later, almost in sync with the rhythm of this bull market. In other words, the stock market's surge has increased market risk appetite, accelerating the inflow of off-market funds into the cryptocurrency market, and we are welcoming Bitcoin's main upward wave.

After the S&P 500 index reached a new high, BTC began to accelerate upward.

Behind the Surge of Dollar-denominated Assets is the Rapid Expansion of U.S. Debt

Since June 2023, the scale of U.S. debt has accelerated upward, increasing by nearly $3 trillion in six months, with total debt exceeding $34 trillion. According to calculations by Bank of America analysts, at the current rate of debt growth, U.S. debt will increase by $1 trillion every 100 days, and total debt will exceed $50 trillion in the next decade.

The growth of fiat currency and debt has no upper limit, while the supply of gold and Bitcoin is limited. The rapid expansion of U.S. debt will undoubtedly drive up asset prices. Under the expectation of high growth in U.S. debt, scarce gold and Bitcoin have become popular options for investors.

Since June 2023, the scale of U.S. government debt has accelerated growth.

BTC Spot ETF Accelerates Off-market Fund Allocation, Challenging Gold's Market Value

On January 10, the BTC spot ETF was approved, leading to nearly $10 billion in off-market fund inflows, pushing Bitcoin to continue its upward trend. In previous bull markets, BTC typically experienced multiple corrections of over 20%, but this bull market has seen few corrections and limited magnitude, thanks to the continuous inflow of off-market funds.

Nearly $10 billion in net inflow into Bitcoin spot ETF.

Referring to gold ETFs, after the launch of the first gold ETF, gold entered a nearly decade-long bull market, rising over 400%. Compared to gold, BTC offers safer storage, more convenient transactions, and faster transfers, possessing superior value storage characteristics. Currently, the market value of gold is $14.5 trillion, while Bitcoin's market value is only $1.3 trillion, indicating that Bitcoin still has a tenfold space compared to gold. Moreover, the launch of Bitcoin ETFs is more favored than the gold ETFs of that time, with a significantly faster inflow of funds.

Compared to the first gold ETF, the inflow speed of the BTC spot ETF is far ahead.

BTC's market value is about to surpass silver, completing in just 15 years what took silver thousands of years. The next step will be to challenge gold's market value and status. Any IP is a high-risk asset; currently, BTC aligns with the trends of the times, and compared to ancient gold, BTC is more favored by the younger generation. Winning over the youth means winning the future, and as the millennial generation gradually takes center stage, BTC will also welcome its moment of glory.

Bitcoin Halving Will Further Reduce Supply, Market Often Speculates in Advance

Bitcoin will complete its fourth halving on April 28, 2024, reducing the block reward from 6.25 BTC to 3.125 BTC, further decreasing Bitcoin's output and selling pressure. According to data compiled by K33 Research on Bitcoin's previous three halvings, the average return 50 days before the halving was 30%, while the average return 50 days after the halving was 3%.

The average return of Bitcoin 50 days before the halving is 30%.

In this bull market, ETFs have brought a large amount of demand for Bitcoin, and the fourth halving will further reduce Bitcoin's supply, exacerbating the supply-demand imbalance. Currently, there are about 50 days left until the halving, and Bitcoin has a high probability of fluctuating upward until the halving is completed.

Market Funds Are Ample, Bull Market Positive Cycle Begins, Altcoin Season May Be Coming

Risk-free interest rates exceed 10%, attracting off-market funds to continue entering

As the cryptocurrency market becomes active and sentiment heats up, the demand for leverage will increase, thereby raising borrowing rates. The Binance USDT savings rate has reached 18%, far exceeding the 5% rate of U.S. Treasury bonds, which will also attract off-market funds to enter for arbitrage.

Market funds are becoming increasingly ample, with excess liquidity tending to flow into popular sectors. Continuously rising sectors will attract more funds into the market, forming a positive cycle of sustained inflow of funds into the bull market.

Binance USDT savings rate reaches 18%.

The demand for stablecoins is therefore continuously increasing, with USDT continuously increasing its issuance since October 2023, and its market value has exceeded $100 billion. With the continuous inflow of off-market funds, this bull market is expected to have a longer duration and a larger magnitude of increase.

USDT's market value has exceeded $100 billion.

Retail investors are entering the market, but there are no signs of a top yet

After Bitcoin strongly broke through $60,000, market sentiment soared, and Meme coins began to rise sharply. New Meme coins like PEPE and WIF have increased tenfold, while older Meme coins like SHIB and DOGE have also performed well. The news headlines of cryptocurrency surging and various stories of retail investors becoming wealthy are widely circulated on social media, attracting more retail investors to rush in.

Meme coins rise sharply, attracting retail investors.

Historically, significant rises in Meme coins usually indicate the end of a bull market; however, it may be too early to talk about a top now. From Google search trends, searches for the keyword "Crypto" have been climbing since the second half of last year, accelerating this year, but the level has only reached half of the peak of the last bull market.

In other words, retail investors are entering the market, but there are currently no signs of a top.

The Google search index for "Crypto" has reached half of the last bull market's peak.

Meme is just an appetizer; ETH's strength indicates that the altcoin season is approaching

Although Meme coins have performed well, most altcoins are still lagging behind BTC in terms of price increases, and a comprehensive altcoin bull market has not yet emerged. However, the rise of Meme coins has opened up the market's imagination, and at the same time, the king of altcoins, ETH, has begun to strengthen, with the ETH/BTC exchange rate rebounding from a low, which may indicate that a broader altcoin season is approaching.

ETH/BTC exchange rate rebounds from a low.

Since last year's Shanghai upgrade, the amount of ETH staked has continued to rise, with the number of staked ETH exceeding 30 million, meaning over 26% of ETH is locked up, significantly reducing the supply of ETH.

At the same time, the activity on the Ethereum chain has increased Gas Fees and accelerated the burning of ETH. Based on the recent seven-day rate, ETH will burn 260,000 annually, which means a total reduction of 1.4%, making ETH even scarcer.

Additionally, the popular re-staking project Eigenlayer has a TVL exceeding $10 billion this year, which has also brought a large amount of staked locking for ETH.

The re-staking project Eigenlayer has a TVL exceeding $10 billion.

After the approval of the BTC spot ETF, giants like BlackRock have begun preparing applications for ETH spot ETFs, which may be approved as early as May this year, shifting the market's focus to ETH and other altcoins, and we will see more altcoin frenzy.

Risk Warning: Beware of Short-term Overheating and Market Deleveraging

BTC is short-term overbought, pressure from previous highs remains

BTC's surge has been remarkable, achieving seven consecutive monthly gains, including March, which is extremely rare in history. Even during the 2020-2021 bull market, BTC only experienced six consecutive monthly gains. It is evident that BTC is currently in a state of short-term overbought.

Moreover, after BTC hit historical highs, a correction triggered a significant market drop, with $69,000 becoming a strong resistance level. Bulls need time to regroup, and BTC may fluctuate below $69,000 for a while to complete the consolidation before breaking through.

BTC's monthly chart shows seven consecutive gains.

Contract rates are relatively high; beware of deleveraging risks

Since late February, contract rates have significantly increased, peaking in early March, with nearly all altcoins' annualized rates exceeding 100%, indicating a substantial rise in market leverage. After the sharp correction on March 6, contract rates decreased, but then began to rise again.

From the contract rate heatmap, it can be seen that the market is showing signs of localized overheating. Although there are currently no signs of a top, excessively high contract rates may weaken bullish momentum, and the risk of the next deleveraging should be monitored.

The market is showing signs of localized overheating.

Conclusion

The long bull market for BTC has already begun, with funds continuously entering the cryptocurrency market, and more altcoin frenzies are about to arrive.

Tide Capital

Tide Capital is a research-oriented digital asset investment and trading company. We study macro and fundamentals to capture Beta and Alpha opportunities from cryptocurrency trends to financial cycles. Adhering to a value-driven philosophy, we are committed to investing in early projects with significant growth potential. At the same time, we assess market cycles to guide investment decisions and actively participate in public market trading for returns.

Disclaimer: The information and materials presented in this article are obtained from public channels, and Tide Capital makes no guarantees regarding their accuracy and completeness. Any forecasts, speculations, or opinions contained in this article are statements about future conditions, subject to the timeliness of information, validity of assumptions, uncertainties, and unknown risks, and may differ significantly from actual results. Any suggestions and opinions in this article are for reference only and do not constitute advice to buy or sell any digital assets, nor do they constitute investment advice or sales offers to any person. The strategies that Tide Capital may adopt may be the same, opposite, or unrelated to the strategies that readers may speculate based on this article. Investors should carefully consider any decisions and seek appropriate legal and financial advice when necessary. Any misunderstanding or misuse of the content of this article does not constitute liability for the author or the publishing organization.