Spot Bitcoin ETF will rise, but BTC will struggle to rally above $65k.
Since July 5, Bitcoin (BTC) has seen a net inflow of $1.91 billion in US exchange-traded funds (ETFs). Despite this, the price has struggled to stay above $65,000.
Meanwhile, the S & P 500 index reached an all-time high on July 16, and gold, considered the world's largest reserve asset, traded at a historic high on July 17. This indicates that the factors hindering the performance of Bitcoin are not related to traditional finance. Markets. But what exactly is causing this underperformance?
Not every spot Bitcoin ETF buyer is betting on the price of BTC.
To begin with, buyers of a spot ETF can buy from a spot, perhaps for tax reasons or to use those shares as collateral for traditional financial businesses. Additionally, the main owners of these ETFs include hedge funds known for their arbitrage trades, which allow them to profit from market volatility without betting on price movements. For example, cash and commodity trading involves selling Bitcoin futures at the same time as buying an ETF position at the same time.
Hedge funds known for arbitrage trades include Millennium Management, Schoenfeld Strategic Advisors, Jane Street, HBK Investments, Susquehanna International and Bracebridge Capital. It is uncertain whether these institutional investors will engage in direct trades such as fully hedged cash and positions. The bottom line is that these funds are not typical long-term holders, nor are they strong believers in Bitcoin's value proposition.
Chicago Mercantile Exchange (CME) Bitcoin futures open interest, which measures total active contracts, currently stands at $10.2 billion, up 23% from last week, according to Coinglass data. For every buyer of a futures contract, there is an equivalent short seller, suggesting that many hedge funds are looking to profit from the premium on BTC futures contracts, currently at an annual rate of 11%.
These funds engaged in arbitrage trades should eventually cover short positions in the futures market, but the market impact will be neutralized by the sale of spot BTC positions. However, this does not preclude other savvy institutional investors from betting against Bitcoin's value. The increase in CME's BTC futures open interest partially explains the limited impact on net income of the spot ETFs.
Related: Bitcoin Sales Networks German Government $2.8B
Inflation has eased in the US, but the price of Bitcoin may not have helped.
From a broader perspective, Bitcoin's main appeal lies in its sovereignty and predictability, which is justified by its strict monetary policy and shared ledger by an independent network of nodes. This narrative becomes more plausible when central banks fail, their purchasing power collapses, or governments lose confidence in paying off their debts. However, US inflation is slowing and US Treasuries are strengthening, indicating that investors have confidence in the US Federal Reserve's strategy.
The 5-year U.S. Treasury yield fell to 4.07% on July 17 from 4.43% on July 17, indicating higher interest from buyers. Investors are accepting low yields for these fixed income assets because they are extremely safe or in anticipation of low inflation in the future. While introducing lower interest rates, this trend is unfavorable for alternative stores of value like Bitcoin, which can stimulate the economy and boost the stock market.
As market confidence in the U.S. economy grows, the narrative supporting Bitcoin as a neutral medium of exchange with a mathematically finite supply will weaken. In the short term, positive macroeconomic data that does not show any signs of distress will have a negative impact on the price of Bitcoin. This removes the bullishness from where the EFF comes in.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
