Crypto entering its parabolic phase
BTC, ETH, and other cryptocurrencies have entered a parabolic phase after BTC’s narrow $50.5-53k consolidation broke to the upside. I know my last post was titled “Equities and bitcoin to take a breather”, but things in crypto have changed significantly since then. Even though I had exited my tactical BTC long, I was ready to get back in if the pullback I expected didn’t materialize. I gave a heads up to the paid subscribers in the Fidenza Macro Telegram channel.
By the way, Farside’s website is the best real-time tracker that I’ve found for tracking BTC ETF flows. BTC did not pull back very far despite the reversal in ETF flows, and instead rallied towards the top end of the range on Feb 26. That’s when I decided to get back into my tactical long, which I trade on top of my long term allocation.
Since then, BTC has gone up in a straight line to 62k, while ETH has rallied from 3000 to 3450. Various alts and memecoins have had triple digit rallies as animal spirits have returned to the crypto markets. Crypto has completely decoupled from global macro, for now.
Since the trough in ETF flows on Feb 22, inflows have reaccelerated and started to make new highs. Blackrock’s IBIT and Fidelity’s FBTC saw record days yesterday, with $612m and $245m in inflows.
The current uptrend in BTC is being driven by a feedback loop where higher prices attract inflows into ETFs, which reduce the supply of available BTC for sale at current prices and drives bullishness in the native crypto community, which in turn is trading on these ETF inflow numbers as they get released.
In addition to the ETF inflows, a whale account has been systematically accumulated hundreds of BTC every day.
https://twitter.com/HODL15Capital/status/1762785038502944881?s=20
The wallet now owns $2.9B worth of BTC. Some speculate it’s a mega-billionaire like Bezos or Elon. The disciplined regularity of these purchases make me think it’s a large institution such as a sovereign-linked entity.
The ETFs and this whale are accumulating 8000-10,000 BTC every day, against a daily supply of 900 BTC from miners. If they are buying, who is selling? First and foremost, it’s market-makers on exchanges who have inventory of BTC to sell to customers. Second is retail and native crypto funds who custody their BTC on exchanges. The balance of BTC on exchanges is at a 5 year low, and has been depleted by 59,000 BTC since the ETFs started trading.
As market makers sell their inventory of BTC to ETFs, they need to turn around and buy it back by skewing their prices higher. Market makers are unable to bring fresh supply to the market - only the crypto natives who already hold BTC can do that. We are in the early part of the bull market where whales (ETFs included) are gobbling as much supply from small holders as possible (orange dots, below). The mid to late part of the cycle begins when both whales and small holders are buying in concert (red dots, below).
In the meantime, the market is in the process of price discovery, grasping for the level where meaningful supply can satisfy the voracious demand of the ETFs. It’s anyone’s guess where that level is, but I think the level where supply and demand come back into balance is $100k or higher. If that turns out to be true, then we may see BTC blow through its all-time high of $69k and trend quickly to $100k before any kind of meaningful consolidation. It’s also likely that the sellers of BTC will be rotating into ETH and other alts, starting a new alt season for the cycle.
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Hi Geo, having watching your trades, I see your strength being very open minded and very fluid on your ideas and trades. You don’t get married to an idea or a trade, like any good trader. You can switch sides just in a few days. But how do you balance between “being fluid” vs. “being too fluid”? Thank you.