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(Kitco News) – Speculation about the approval of a spot Bitcoin (BTC) exchange traded fund (ETF) has been one of the main drivers of the cryptocurrency market’s gains in 2023, especially after BlackRock filed its application with the Securities and Exchange Commission in June .
Last week, BTC bulls challenged resistance at $38,000, helped by rumors that the SEC might approve all applications currently on its list, but Friday came and went without approvals, much to the chagrin of crypto advocates .
According to Martin Leinweber, digital assets product strategist at MarketVector Indexes, the delays were foreseeable and he does not expect any of the applications to be approved in 2023.
But crypto traders won’t have to wait too long, he said, as the last day for a decision on the ARK 21Shares application is January 10, 2024, and he is “not worried about the delays at all.”
“I still think this is the main driver for crypto right now,” Leinweber said. “If you look at global inflows into exchange-traded products such as ETFs and ETNs, we have seen more than $1 billion in inflows into Bitcoin products this year, 80% of which came in the last four weeks.”
“Investors are preparing for the eventual approval of a Bitcoin ETF application,” he said. “And I think we will see additional inflows with these huge distribution arms from BlackRock, Fidelity and Franklin Templeton. I don’t believe this is a “buy rumor, sell fact” event like we saw with Coinbase’s IPO or Bitcoin futures. I really think we’re going to see more inflows into the space.”
While he is extremely positive about the long-term outlook for BTC, he warned that “we could see a slight sell-off in Bitcoin and Ethereum” as traders take profits after the recent ETF-inspired run. UPS.
“The Ethereum/Bitcoin pair is pretty weak at the moment, so Ethereum is underperforming,” he said. “Next year people will play the spot BTC ETF first and then the Ethereum ETF later.”
When asked about the source of Bitcoin’s momentum in early 2023, before the rush of ETF filings, Leinweber said, “There are always frontrunners,” whether related to the ETF filings or just that more experienced crypto traders are familiar with when the BTC market bottoms out before its next halving.
Aside from the positive sentiment generated by spot BTC ETF speculation, Leinweber pointed to the macroeconomic backdrop and an increase in global liquidity.
“When you think about global liquidity, it’s just the expectation of more liquidity coming in,” he said. “And we had this super bearish stance last year with a weak stock market and a weak crypto market.”
“When you look at what fiscal dominance means around the world, you also have to consider what the Fed, the ECB and other financial authorities are doing,” he said. “The US is heavily indebted and the money is flowing back. And what you’re seeing now, especially given expectations of higher liquidity, is that crypto is still the highest beta asset when it comes to liquidity, followed by tech stocks.”
Leinweber called the Bitcoin halving cycle “interesting” because it happens to coincide with the global liquidity cycle.
“After the banking crisis in 2009 there was a restart. A reset to zero interest rates. And also the US dollar cycle, which is perfectly aligned with the halving cycle,” he said. “So maybe it’s the halving cycle. I think it’s more the macro cycle coinciding with the halving cycle, but I still think people will play this and it’s the perfect cocktail for another bull run next year.”
“So you have the spot Bitcoin ETF. There is a possibility that the Fed will cut interest rates – at least that is the market’s assumption. I think we have priced in the first rate cut in May. And then there is the halving cycle,” he said. “It should be a nice year for crypto in 2024. At least that’s my hope.”
Global debt problem
On the topic of rapidly rising U.S. debt and whether the debt burden is becoming a major factor in how countries around the world perceive the U.S. dollar, Leinweber noted that the debt issue is “a global phenomenon.”
“We have global debt. It exists in Japan, Europe and the United States,” he said. “In the USA you have the advantage of having the world reserve currency. So, as a currency issuer, you technically cannot default. You can just print more, but you’re already seeing it in dollar value. I’m currently in New York and over time I’ve noticed that it’s getting more and more expensive. The coffee is more expensive, but the coffee hasn’t gotten any better. It’s the same coffee, so the difference reflects the declining value of the currency.”
He noted that the U.S. debt-to-GDP ratio is 130%, which is the same level Italy was at when the European debt crisis broke out.
“Now Italy is much higher and no one cares about Greece anymore, so the debt issue is a global phenomenon, it’s just a relative approach,” he said. “So people still feel safe with the dollar, but I think that’s also a reason why Bitcoin keeps going higher.”
He emphasized that Bitcoin has seen a sharp rise since the Silicon Valley bank crisis in early 2023, saying: “People are scared of it, and to be honest, no one can tell you where the tipping point is.”
“Japan has a debt of 250% of GDP and the interest rate is still below 1%. They control the yield curve, but you see their currency depreciating sharply against the dollar,” he said. “It’s like the Ernest Hemingway quote: ‘How did you go bankrupt?’ Gradually, then suddenly.’ It’s a hockey stick. Nothing happens and then suddenly the turning point is reached. You have a triggering event, whatever that is.”
He said it’s hard to know what that triggering event is, “but that’s why you should have some gold and some crypto.” They are bearer assets. I love both analog and digital gold.”
When asked about the price outlook for Bitcoin during the current bull market cycle, Leinweber said he was unsure what price BTC would reach, preferring instead to comment on the total market cap.
“So the last peak was three trillion,” he said. “I imagine we will see a total market cap of $10 trillion in the next cycle.”
When told that several analysts, including Bloomberg Intelligence’s Jamie Coutts, have also predicted a total market cap of $8 trillion to $10 trillion, Leinweber chuckled and said, “Forget that number, it’s already consensus, so it will be different.” .”
“It really depends on the success of the ETFs and the broader macro backdrop,” he said. “I think in terms of liquidity – let’s assume the Fed cuts rates and does QE again. Who will buy the US debt? China doesn’t buy it anymore. The Russians don’t buy it anymore. The Japanese don’t buy it anymore. Europe is issuing more debt. Everyone is issuing more debt.”
“So central banks have to intervene,” he concluded. “And here we are. More liquidity, which is good for stocks and good for crypto. It’s beneficial to have access to the highest beta asset, which is crypto.”
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