February 20th Bitfinex Alpha | Bitcoin’s bullish momentum still holds true
On Bitfinex Alpha
Bitcoin showed strong resilience this week, hitting new highs this year despite (or perhaps because of) higher-than-expected CPI and PPI data that continued to drive inflows into the Bitcoin ETF trading space.
At $52,700, BTC is up 25% since the beginning of the year and 207% from its November 2022 low. This leaves BTC 28.6% below its all-time high, with supply limited while demand increases even at higher prices.
In addition to the continued flow of funds into spot Bitcoin ETFs, the short squeeze rate has been lower this year than in previous years. We hypothesize that this is the result of two factors. First, large whale investors did not hold significant short positions in the expectation that prices would continue to rise. Second, they preferred direct investments in BTC rather than derivatives, investing more resources in the spot market.
An analysis of the current supply distribution shows that only 11% of total supply is at a loss, and a smaller percentage of long-term holders (6%) are also at a loss. History shows that these supply allocations herald early bull markets.
In the broader economy, persistent inflation and falling consumer spending have pushed expectations of a rate cut into May or even June.
Although somewhat muted, consumer spending is expected to remain stable, with a clear trend of inflation decreasing over time and a stubborn labor market remaining strong. Moreover, the U.S. housing market showed signs of optimism with builder confidence experiencing growth for three straight months.
In the cryptocurrency space, we continue to see regulators and financial institutions around the world making significant progress to protect consumers and leverage the transformative potential of digital currencies. The UK’s Financial Conduct Authority (FCA) has been at the forefront of consumer protection, issuing more than 2,285 warnings about cryptocurrency promotions by unlicensed providers over the past year.
In Korea, alertness to illegal cryptocurrency activities has also increased noticeably, with reports of suspicious cryptocurrency transactions surging by 48.8% in 2023. It reflects a global trend to scrutinize markets more closely.
However, in the US, Federal Reserve Governor Christopher Waller emphasized that stablecoins pegged to the US dollar, along with the growth of decentralized finance (DeFi), which is important for cryptocurrency trading, are solidifying the hegemony of the US dollar. Despite being synthetic currencies, the use of dollar-backed stablecoins only serves the purpose of strengthening dollar demand.
Adding to the topic of how cryptocurrencies and blockchain can drive innovation, Citibank has published evidence of its success in exploring capital tokenization through private equity. This move not only demonstrates the practical application of blockchain technology beyond traditional cryptocurrencies, but also signals the growing interest of major financial institutions in digitally transformative asset management activities.
Have a happy trading week!