Crypto investors are preparing for a busy quarter with the Bitcoin halving, Ether ETF updates and possible interest rate cuts
Bitcoin is set for another strong quarter, but fiscal and monetary policy could cause a stir. Two widely anticipated catalysts will play out in the crypto market over the April-June period: the Bitcoin halving, which historically precedes a bull run to new highs; and a Securities and Exchange Commission decision on spot Ether ETFs after it approved Bitcoin ETFs in January. However, the most important driver in the second quarter for Bitcoin and cryptocurrencies could be the Federal Reserve's decision to cut interest rates. “The main reason people buy [crypto] “Assets are driven by demand for a store of value and an alternative to the dollar, and the dollar's most important underpinning may be the level of short-term interest rates set by the Fed,” said Zach Pandl, head of research at Grayscale Investments. Late last year, the Fed signaled that interest rate cuts were imminent. However, inflation data has since increased again, raising questions about the timing of rate cuts. Traders are now pricing in about a 61% chance that the Fed's first rate cut will happen in June, according to the CME FedWatch Tool. “If the Fed doesn’t cut rates, I think we’re going to have to rethink a lot of our market views,” Pandl said. “If the Fed cuts interest rates anyway.” a strong economy despite reasonably high inflation… That's very encouraging, that's very positive for the asset class.” BTC.CM= YTD Mountain Bitcoin (BTC) YTD Bitcoin is on the, according to Coin Metrics best way to end the first quarter with a 66% gain and posted a 13% gain in March – despite a brief 17% decline from the all-time high reached just days earlier. Cryptocurrencies are traded 24 hours a day, seven days a week. According to CoinGlass, the second quarter tends to be a strong quarter for Bitcoin, ending in the green in seven of the last 11 years since the cryptocurrency's launch. “I remain optimistic about the prospects,” said Pandl. “The base case is a soft landing for the U.S. economy, Fed rate cuts despite reasonably firm inflation, and a contentious presidential election that could bring additional downside risks to the dollar, depending on the candidates' statements and positions as we progress “The things that brought us here, in our opinion, haven’t changed much,” he added. “The actions we would take to get to where we are in the bull market appear to be only mid-way through… we think the price will likely continue to rise in the second quarter.” One possible Demand Shock One reason Bitcoin hit new records in March was the continued success of spot Bitcoin ETFs, which first launched in the US in January. According to CryptoQuant, demand has increased from 40,000 Bitcoin at the beginning of the year to 213,000 Bitcoin currently, largely due to ETF purchases ahead of the Bitcoin halving in late April. Meanwhile, Bitcoin supply is already limited, and the halving – an event mandated in the Bitcoin code that reduces the Bitcoin mining reward by half to limit supply – hasn't even happened yet. CryptoQuant estimates that current liquidity levels on Bitcoin's sell side are only sufficient to meet demand at the current 12-month growth rate. If this continues, it could lead to a sharp increase in Bitcoin price and volatility. “Approximately 27,000 Bitcoins are issued monthly, which represents approximately 12% of monthly demand at current demand growth rates,” said Julio Moreno, head of research at CryptoQuant. “After the halving, newly issued Bitcoin would only meet 6% of current demand. Of course, this assumes demand remains as strong.” The halving has become a widely watched catalyst, with each of the last three in Bitcoin’s history followed by huge returns in the months that followed. Investors will be interested to see what impact new demand for ETFs has on price this year. “Every time we have a halving, it’s half as much, so the supply is halved again, but not as much as before,” Chris Kuiper, head of research at Fidelity Digital Assets, told CNBC. “There is some debate as to whether the impact will be as large as before or whether the previous halvings had a much larger impact due to a supply shock.”[There] This time it may not be as big a supply shock, but I think we have a bigger demand shock this time,” he added. “We'll see how these two play against each other.” Grayscale's Pandl said that for the market in the short term, the halving is at best a symbolic event. “The halving has been planned since Bitcoin's inception in 2009, something that has been talked about a lot, so I would be surprised if the halving date was a market-moving event.” “It's a really important event in the sense that it's tied to the Bitcoin's predictable monetary policy and how that contrasts with the uncertain outlook for fiat currencies.” Ether ETFs, which begin trading in May, are “very likely” to be market-moving, he added. Pandl also noted that while he expects the funds to get the green light, the consensus, according to prediction market Polymarket, is that this will not be the case. Grayscale is one of several companies, including Fidelity and BlackRock, that have applied to the SEC for approval to launch an Ether ETF. “If it's not priced in today, it will most likely be a market-moving event when it occurs,” he said. —CNBC's Ganesh Rao contributed reporting.
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