Will institutional money push Bitcoin past all-time high of $69,000?

Bitcoin, the poster boy of cryptocurrencies, could well zoom past the $69,000 mark that it had hit in 2021. Despite scepticism around the very origin and its value, Bitcoin has gained over 50% since the start of the year to $66,000 levels. According to Crebaco Global, the Mumbai-based crypto rating and analytics firm, the currency could hit $100,000-$150,000 by the end of 2024, based on the current trends and institutional inflows.

The approval for 11 spot Exchange-Traded Funds (ETFs) by the US Securities and Exchange Commission (SEC) early this year has led to mainstream adoption of Bitcoin on the Wall Street, with major financial institutions such as Blackrock, Vanguard, Valkyrie, Vanek, and Fidelity launching their ETFs. The cumulative inflow of institutional money into Bitcoin through these ETFs has reached a staggering $42 billion since trading began in ETFs from January 11, with a substantial portion of this inflow occurring in the past two months. Demand for spot bitcoin ETFs accelerated in the week to March 2, on the back of $673 million net inflow. The momentum continued as net flows of $562 million were seen on March 4 when Bitcoin briefly breached $68,000 levels.

Of the 21 million Bitcoins created by Satoshi Nakamoto, the pseudonymous founder of BTC, 19.64 million bitcoins have been mined till date and the remainder (1.36 million coins) will be mined by 2140. “To enhance its scarcity value, every four years it becomes tougher to mine bitcoins, which is called the halving episode, when the number of coins a miner gets as a reward for completing each calculation will fall from 6.25 to 3.125,” says Sidharth Sogani, founder of Crebaco. As 144 blocks are mined per day with an average 6.25 bitcoins available per block, the current mining process translates into 900 new bitcoins being mined per day. The previous halving episodes had occurred in 2012, 2016 and 2020 and this year, the halving will come into effect in April-May, and the process will continue until all the 21 million Bitcoins are mined, with 29 more halvings anticipated after 2024. “This raises the production cost and narrows additional supply at the same time,” says Sogani.

The ETFs have helped Bitcoin prices break through resistance levels of $28,000 and $35,000 with trading volumes having already surpassed $3 billion in the past 24 hours. As per CoinMarketCap, Bitcoin with a market cap of $1.24 trillion dominates the crypto market with a 53% share of the overall value.

According to Crebaco, the current stage, which is expected to last for the next one to two months, could potentially extend until May, fuelled by the anticipation surrounding the halving event. Subsequently, the entry of retail investors into the market during stage three is anticipated, leading to a surge in altcoin prices. Stage four, characterised by market consolidation and correction, is expected to follow, with Bitcoin remaining relatively stable owing to institutional holdings. Despite potential geopolitical risks, such as elections and conflicts, the overall outlook for the crypto market remains bullish, different estimates predict the market cap to touch $4-5 trillion within six months.

In addition to Bitcoin, Ethereum, too, has seen a significant price appreciation in recent weeks, soaring from $2,200 to $3,500. The decentralised nature of Ethereum, coupled with its robust use case in layer one solutions, has been instrumental in driving its positive performance. The upcoming network upgrade scheduled for March 13th is anticipated to further enhance Ethereum's efficiency, bolstering its position in the market, states the report. Additionally, the news of a potential ETF for the Ethereum chain, expected in the second week of May, has ignited optimism among market participants.

Approximately 4-5% of Ethereum's supply is locked in projects such as EigenLayer, reinforcing the fundamentals of the Ethereum network. EigenLayer is a protocol designed for the Ethereum blockchain that allows miners to participate in securing the network while earning rewards (Ethereum] for their contribution. According to Crebaco, Ethereum is poised to surpass the $5,000 mark by the year end.

The report, however, highlights that funding rates in the derivatives markets, particularly in futures contracts, is a key indicator of market sentiment. Funding rates surged to as high as 125% p.a. on some exchanges, leading to a few shakeouts. According to Sogani, when funding rates hit the 90%-120% range, traders should exercise caution as it could result in liquidations, as seen on 28th February, when liquidations exceeded $300 million in just five minutes. Currently, the leverage rates on Binance for trading in Bitcoin is 47.63%. Such high rates can lead to increased costs for maintaining long positions, potentially causing traders to close their positions to avoid hefty fees, which can lead to market shakeouts—a rapid, short-term movement in asset prices that forces traders out of their positions. If the funding rate is positive, long position holders pay short position holders, which usually happens when the price of the perpetual contract is higher than the spot price, indicating bullish sentiment. Conversely, a negative funding rate means short position holders pay longs, reflecting bearish sentiment.

Since cryptos are not regulated, the counterparty risk is quite high as the collapse of the FTX exchange showed where clients not just lost their cryptos but also the money. However, according to a report by Citigroup, other centralized exchanges such as Coinbase and Binance account for nearly 83% of spot-trading volume. However, in the absence of a regulatory framework, crypto users are still exposed to risks, which is prompting some users to move cryptos to software wallets or offline wallets, which are devices such as Ledger Nano that are easily available on sites such as Amazon retailing anywhere between ₹6,000 and ₹40,000.