Bitcoin, Ethereum, ETF: understanding the crazy streak of the last ten days

You had to have strong nerves to invest, during this first half of May, in cryptocurrencies and Exchange Traded Funds (ETFs), the first category of financial investments based on bitcoin, authorized since January by the American financial watchdog, Securities. and Exchange Commission (SEC).

The price of bitcoin, which weathered the halving shock (division by two, process of reducing inflation of this cryptocurrency) rather well which occurred between April 19 and 20, reached its lowest level since February on May 1. , below the $58,000 mark, or $15,000 less than the April peak. After this drop which occurred within 24 hours, the price has vaguely recovered since and oscillates between 65,000 and 60,000 dollars, depending on the different platforms which follow this cryptocurrency. The second cryptocurrency in terms of capitalization, ether, followed a fairly similar curve over the period from April 29 (more than 3,200 dollars) to May 3 (less than 3,000 dollars), with a less clear rebound on the END.

Rather solid since the first assets were marketed, the Bitcoin Spot ETF market has also experienced a fairly crazy sequence with a black May 2 marked by an outflow of $563 million in one day, relayed by specialized sites (Corner Tribune or Coin Desk, in particular). Two days later, it was a diametrically opposed performance, i.e. $378 million injected by investors into ETFs, which shook the market, forcing analysts to bet on everything and its opposite.

The Orient-The Day contacted two experts, Phil Bekhazi, co-founder of the investment platform specializing in cryptocurrencies XBTO, and financial consultant and asset manager Rudy Farès, to decipher this latest sequence.

For memory

What’s pushing bitcoin to new heights

ETF, bitcoin and soon ether?

ETFs are financial investments offered by funds which invest their money or that which has been entrusted to them in securities reproducing the performance of an index chosen upstream – whether stock market or of another nature. They offer a way to invest in the stock market without being exposed to the risks of a limited number of listed companies.

Since January 10, the American SEC has authorized several categories of ETFs backed by bitcoin, the king of cryptocurrencies which are decentralized by nature. A first pushing many institutional players. “Concretely, ETFs allow an investor – an individual, an investment bank, etc. – either to invest your money in bitcoin (while waiting for the launch of ETFs backed by other cryptocurrencies) without having to invest directly in trading, or to acquire a digital wallet dedicated to the purchase and sales and to intervene directly in the market,” explains Rudy Farès. “The counterpart is the management fees requested by the operator,” he notes.

“The bitcoin curve is reflected symmetrically and without interference on the curve of bitcoin-backed ETFs. So each dollar invested will evolve according to the price of the cryptocurrency. It’s a passive product,” adds Phil Bekhazi. He specifies that certain managers, like XBTO, focus on more “active” products, which benefit from both increases and decreases in the markets, generating a margin on the variation.

Rudy Farès emphasizes, for his part, that ETFs backed by other cryptocurrencies are in the works or already launched. In the United States, the SEC must approve the marketing of Ethereum ETFs, and several companies already offer this type of asset on the American market. Hong Kong launched its own EFTs based on bitcoin and ether on April 30, with a tentative start so far.

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What moved the market

Beyond the various movements (the surprise of asset manager Grayscale and its $63 million raised on May 4, in particular), Phil Bekhazi considers that the latest sequence results from the combination of two more global factors.

First of all, there is the fact that each halving has generally been followed by a rebound period more or less spread out over time.

Halving (division by two) is a process inherent to the bitcoin algorithm launched in 2009 and which plans to reduce the inflation of this cryptocurrency every 4 years by halving the quantity of available units and the reward obtained by each mined block (grouping of bitcoin transactions attached to metadata).

“It’s natural for cryptocurrencies to take a breather. A downward (correction) of around 20% on a performance such as bitcoin experienced before by climbing beyond $73,000 in the weeks preceding the halving is something normal,” explains- he. In fact, even with this correction, bitcoin is currently trading at a level 44% higher than it was a year ago and more than 66% compared to six months ago, according to site data. tradingview.com “The reality is that bitcoin is up thousands of percent since its inception. Those who want to invest in cryptocurrencies simply need to have a fairly long investment window, longer than six months,” Phil Bekhazi further considers.

But the surge was also favored by cyclical factors. “On Friday, the economic data that was released suggested that the US Federal Reserve could find itself stuck in a monetary policy favoring a reduction in key interest rates,” explains Phil Benkhazi. At the beginning of May, the Fed on Wednesday kept its interest rates unchanged between 5.25 and 5.50%, a range within which they have been moving since July, while some of its officials are pushing for a reduction that the markets anticipate next September.

However, this emerging trend has an impact on investors who tend to favor “risk-on assets”, assets which have a high degree of risk, such as shares on the stock market, but which offer higher returns than safe haven values ​​or safer, but less juicy investments (risk-off assets),” further develops the co-founder of XBTO. “The funny thing about bitcoin is that investors perceive it as risk-off assets – which its long-term progression curve confirms – but in the short term it behaves like risk-on assets, with erratic fluctuations. This is a similar trend to shares issued by companies,” he concludes.

What to expect or fear

And now what should we wait for? If it is generally accepted that knowing the past allows us to better predict the future, the cryptocurrency market must today take into account several factors which risk changing the habits of its aficionados. One of the signs that the market is evolving lies in the changes in the rhythm of the cryptocurrency fluctuation cycles before and after the halving. In an article published on May 8, Coin Tribune notably highlighted the fact that a peak had occurred just before the halving and that the market corrections that followed were less marked.

The first, and undoubtedly the most important at the moment, is the fact that the development of ETFs in the United States, a financial market which generally sets the tone for the rest of the world, will make bitcoin more vulnerable to the maneuvers of the big guys. investors. “The advantage of ETFs is that they reinforce the legitimacy of the cryptocurrencies on which they are based, beyond the circle of communities which enabled their development. They also push demand and prices upwards,” explains Rudy Farès. “But it’s a double-edged sword because each big player will have the capacity to shake prices by withdrawing their investments, which will make prices more volatile,” he further points out.

It also highlights a certain crack in the enthusiasm generated by ETFs. While the difficult start of these assets in Hong Kong does not allow any conclusions to be drawn for the moment, Grayscale’s recent decision to abandon its request for authorization from the SEC to launch futures contracts on Ethereum raises questions .

In terms of macroeconomic details, on the other hand, the ground seems paved to guarantee the development of ETFs in 2024, or even 2025. In its April forecasts, the International Monetary Fund (IMF) expects a decline in global inflation from 6.8% in 2023 to 5.9% in 2024, then to 4.5% in 2025, which should encourage central banks to lower interest rates, thus giving a boost to investments.