What Does the Future Hold for Bitcoin and Altcoin Price Amidst Potential Challenges in the Crypto Market?
Bitcoin has experienced a remarkable surge, surpassing $72,000 for the first time and achieving gains for the sixth consecutive day. This upward trend has resulted in a nearly 70% increase in value for the year so far, primarily driven by significant inflows into US exchange-traded funds. However, despite Bitcoin’s impressive performance, experts are predicting a potential liquidity crisis in the near future. So why is this expected?
A recent report from Coinbase has shed light on the potential challenges that the cryptocurrency market may face in the coming weeks, despite Bitcoin reaching new all-time highs. Coinbase suggests that liquidity could be affected by quarter-end rebalancing. Additionally, the upcoming halving event may keep Bitcoin trading within a tight range until next month.
Analysts David Duong and David Han explain that although positive factors such as spot ETF inflows are currently contributing to Bitcoin’s success, they may encounter obstacles in the near future due to macro and technical headwinds.
One significant factor contributing to this uncertainty is the anticipated expiration of the Bank Term Funding Program (BTFP) by the Federal Reserve on March 11. While this may eliminate an opportunity for banks to exploit arbitrage, it could reintroduce vulnerabilities into the financial system.
Coinbase also highlights the potential liquidity constraint caused by decreased cash reserves among fund managers and quarter-end rebalancing. As a result, they anticipate that Bitcoin will trade within a narrow range until the upcoming halving event, which is set to occur in mid-April and will halve mining rewards.
Despite these challenges, the report suggests that U.S. spot Bitcoin ETFs continue to play a significant role in supporting Bitcoin demand. However, the authors anticipate that these support drivers will encounter obstacles, leading to Bitcoin trading within a narrow range until the next significant event, which is the mid-April halving.
Furthermore, the report explores the evolving influence of exchange-traded funds (ETFs) on Bitcoin’s market dynamics. ETFs currently hold nearly triple the quantity of Bitcoin compared to miners, introducing a new element that complicates predictions based on historical cycles.
Interestingly, Coinbase notes that the rise of ETFs has altered Bitcoin’s market dynamics, making it less predictable to study previous halving cycles. The report highlights that the cumulative net growth in BTC held by ETFs has surpassed that generated by miners by almost threefold, indicating a shift in market influence.
In the meantime, Coinbase shares have experienced a surge of over 80% in the past month, driven by a nearly 50% rally in Bitcoin’s price during the same period.