Sunday, May 26, 2024

Bitcoin Soars 9.5% for Biggest Daily Jump Since October as Market-Neutral Strategies Outperform U.S. Treasuries

HomeCryptoBitcoin Soars 9.5% for Biggest Daily Jump Since October as Market-Neutral Strategies...

Bitcoin bulls are running as the top cryptocurrency logged its biggest single-day percentage gain since October on Wednesday. BTC prices surged 9.5% to over $64,000 across major exchanges, reaching highs not seen since November 2021.

The recent parabolic move from Monday’s low near $51,500 has been widely credited to increased Wall Street interest and adoption of spot bitcoin ETFs. The overall crypto market also saw gains, with the CoinDesk 20 index rising over 10% just this week.

Industry analysts broadly agree that this rally will continue through the coming months, likely taking bitcoin over the six-figure threshold again.

Our analysis predicts a conservative BTC price target between $100,000-$120,000 to be reached by Q4 2024, with the overall crypto market cap peak being achieved sometime in 2025,” said analysts from crypto exchange Bitfinex.

The new bitcoin ETFs have introduced more ‘passive demand’ from investors who see BTC as a long-term store of value rather than a volatile tradable asset,” the analysts explained. “This shift in perception has been building over the past few years prior to the ETFs.”

Earlier this week, noted technical analyst Peter Brandt forecasted bitcoin potentially peaking at $200,000 by September 2025.

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While directional traders may be most excited by the renewed bull market, non-directional traders can also capitalize through cash and carry arbitrage. This market-neutral strategy profits from price differences between spot and futures markets.

Arbitrageurs open a long position on spot bitcoin while shorting the futures when the latter trades at a premium. As expiry nears, that premium converges and the trade realizes a relatively risk-free return.

Per blockchain analytics provider Glassnode, the BTC cash and carry trade currently yields over 14% annually using three-month futures. This is more than triple the 4.27% yield on 10-year U.S. Treasuries, which are considered virtually risk-free. It also bests the 5% yield on 1-year Treasuries by nearly 3x.

The outsized yields available could entice more market makers and liquidity back into the crypto space. As Glassnode noted in its weekly newsletter:

“The yield in futures markets will likely start attracting market makers back into digital assets, deepening market liquidity.”

In other words, the cash and carry arbitrage presents an attractive opportunity even for non-directional traders and risk-averse investors looking for yield rather than bullish exposure.

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Meanwhile, the spot bitcoin ETFs have opened the floodgates to institutional capital, with both passive and active funds adding cryptocurrencies to their portfolios.

Namely, the ProShares Bitcoin Strategy ETF (BITO) has quickly amassed over $1.2 billion in assets under management since its October premier on the New York Stock Exchange. The Viridi Bitcoin Miners ETF (RIGZ) offers exposure to publicly traded crypto mining companies.

“It’s an easier way for certain investors to gain exposure to bitcoin and diversify their portfolios without having to directly custody the asset,” said Ben Cruikshank, head of ecosystem at AAX, a crypto exchange.

Matt Hougan, chief investment officer of Bitwise Asset Management, added that most advisors have been reluctant to allocate to crypto until now.

“A bitcoin futures ETF opens the door for many of them,” Hougan told CoinDesk. This could ultimately prove to be a very big catalyst for growth in the space.

While bitcoin ETFs have been available in Canada and other regions for some time, the U.S. versions remove hurdles for domestic institutional adoption. Both retail and professional investors can now readily gain exposure to cryptocurrencies via traditional brokerage accounts.

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That Wall Street embrace sent a bullish signal, validating bitcoin’s staying power and importance as a non-correlated financial asset. Major banks have also been racing to offer crypto services despite the sector’s reputation for volatility and risk.

“The increase in institutional demand comes against the backdrop of inflationary pressures which bitcoin is seen as hedging against,” noted Bitfinex analysts.

The consumer price index (CPI), a key inflation metric, rose 7.5% in January from the year before – its steepest annual increase in four decades. That prompted the U.S. Federal Reserve to signal imminent interest rate hikes while also planning to shrink its nearly $9 trillion balance sheet.

In this context, bitcoin and other non-correlated crypto assets prove attractive to hedge both inflation and market uncertainty. This paradigm shift from skepticism to adoption has been dubbed ‘hyperbitcoinization’ by supporters.

If the bullish projections are realized, both swing traders and passive investors will have opportunities to profit in the newly minted bitcoin ETF era. Crypto veterans have long preached ‘digital gold’ as a way to diversify traditional portfolios skewed towards stocks and bonds. Now Wall Street finally seems to be listening.



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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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