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Crypto Investors Prepare for a Busy Quarter With Bitcoin Halving, Ether ETF Updates and Potential Rate Cuts
Bitcoin is poised for another strong quarter, but fiscal and monetary policy could shake things up. The crypto market will see two widely expected catalysts occur during the April-June period: the Bitcoin halving, which historically precedes a bull run to new highs; and a Securities and Exchange Commission decision on ether spot ETFs, following its approval of bitcoin ETFs in January. However, the biggest Q2 driver for Bitcoin and crypto could be the Federal Reserve’s decision regarding interest rate cuts. “The fundamental reason why people buy [crypto] “Financial assets are due to the demand for a store value and alternative to the dollar, and the most important fundamental of the dollar could be the level of short-term interest rates set by the Fed,” a said Zach Pandl, head of research at Grayscale Investments. Late last year, the Fed signaled that interest rate cuts would be imminent. Since then, inflation data has picked up, raising questions about the timing of rate cuts. Traders now estimate a probability of around 61%. The Fed’s first rate cut will occur in June, according to the CME FedWatch tool. “If the Fed doesn’t cut rates, I think we need to rethink many of our views on the market,” Pandl said. “If the Fed cuts rates despite this. a strong economy despite somewhat high inflation… It’s very encouraging, it’s very positive for the asset class. “BTC.CM= Year-to-date mountain Bitcoin (BTC) Year-to-date, Bitcoin is on track to finish the first quarter up 66%, according to Coin Metrics, and has recorded a gain of 13% for March – despite a brief 17% decline from its all-time high set a few days prior Cryptocurrencies trade 24 hours a day, seven days a week. The second quarter tends to be a period of strength. for bitcoin, finishing in the green in seven of the last 11 years since the cryptocurrency’s inception, according to CoinGlass “I remain optimistic about the outlook,” Pandl said. smooth US economy, a Fed rate cut despite somewhat firm inflation and a contentious presidential election, which could introduce additional downside risks for the dollar, depending on candidate statements and positions that we will hear during the course. of the quarter.” “We think the things that got us here haven’t changed materially,” he added. “The metrics we would use to try to move to where we are in the bull market appear to be only halfway there…we think prices will likely continue to rise in the second quarter.” A Potential Demand Shock Part of what propelled Bitcoin to new record highs in March is success continued spot Bitcoin ETFs, first launched in the U.S. in January Demand has grown from 40,000 bitcoins at the start of the year to 213,000 bitcoins currently, largely driven by pre-cut ETF purchases. Bitcoin halving at the end of April, according to CryptoQuant Meanwhile, bitcoin supply is already limited and halving – an event mandated in Bitcoin code that halves the bitcoin mining reward to limit supply –. hasn’t even happened yet CryptoQuant estimates that Bitcoin’s current sell-side liquidity inventory is sufficient to cover demand at its current growth rate for 12 months. This could lead to a sharp increase in the price and volatility of Bitcoin if it continues on this path. “Approximately 27,000 bitcoins are issued each month, which represents approximately 12% of monthly demand at the current demand growth rate,” said Julio Moreno, head of research at CryptoQuant. “After the halving, the newly issued bitcoin would only cover 6% of current demand. Of course, this assumes demand remains this strong.” The halving has become a widely watched catalyst, as each of the last three in Bitcoin’s history has been followed by monster returns in the months since. Investors will be watching what effect this will have on prices this year with new demand via ETFs. “Every time we halve, it’s half the amount, so the supply will be halved again, but not as much as before,” said Chris Kuiper, head of research at Fidelity Digital Assets, at CNBC. “There is some debate as to whether this will have as big an impact as before or whether previous halvings had a much bigger impact due to a supply shock.”[There] “It may not be as much of a supply shock this time, but I think we have a bigger demand shock this time,” he added. “We’ll see how these two play against each other.” In the short term, the halving is at most a symbolic event. “The halving is something that has been planned since the inception of Bitcoin in 2009, something that has been talked about a lot, so I would be surprised if the halving date was a market-moving event.” “However, the SEC’s decision on whether to allow the spot Ether ETFs including trading scheduled for May will “very likely” move the market, he added, although he believes the funds will get the green light, the consensus according to Polymarket’s market forecast is that they will not Grayscale is one of several companies, including Fidelity and BlackRock, in line with the SEC to obtain approval to launch an ether ETF. then it will most likely be a market-moving event if that happens,” he said. —CNBC’s Ganesh Rao contributed reporting.