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What is the main reason for the 127% rally in BTC/USD in 2023? Is it the expectation of approval from the Securities and Exchange Commission for BlackRock's and other companies' applications to create ETFs with Bitcoin as the underlying asset? Or is it the resolution of uncertainty regarding FTX fraud and the prosecution of Binance? The largest crypto exchange has agreed to pay a fine of $4.3 billion, which was perceived by investors as very good news.
The fact that Binance, unlike FTX, will ultimately survive by changing its CEO, dealing with the fine sanctions, and promising to do better next time, is excellent news for the crypto industry. Yes, the amount of $4.3 billion looks impressive, but according to Bloomberg's analysis, the company made about $20 billion in profit in 2021 alone. Yes, Binance's reserves have decreased by 5,000 bitcoins in the last few days, indicating a significant capital outflow, but in reality, money is simply being redistributed within the industry. For example, Coinbase has seen an influx of around 12,000 bitcoins.
Belief in the creation of a specialized exchange-traded fund with the leader of cryptocurrencies as the underlying asset and optimism about the end of the prosecution of Binance have led to an accelerated influx of capital into bitcoin products such as ETFs and ETNs. Since the beginning of the year, they have been valued at over $1 billion, with 80% of the funds coming in the last four weeks. It's not surprising that BTC/USD quotes have jumped to the highest level since May 2022, and the demand for call options with strike prices of 40,000 and 45,000 is skyrocketing.
Volumes of Bitcoin Options with Different Execution Prices
The bullish prospects of Bitcoin is also indicated by the upward shift in futures market curves, referring to price differences in contracts with different expiration dates. If a month ago, investors expected growth to 32,000, now, their focus is on the figure of 40,000.
The news of the creation of ETFs and the end of the prosecution of Binance may certainly be good for BTC/USD, but the main driver of the rally is the expectations of cheap liquidity from central banks. The futures market expects a 100 basis points reduction in the federal funds rate by the Federal Reserve and the ECB deposit rate in 2024. Massive monetary stimulus are a lifeline for struggling economies. They became the main reason for the surge of the cryptocurrency leader to record highs in 2021.
Dynamics of Bitcoin Futures Curves
The market seems to be getting ahead of itself, expecting such significant cuts in borrowing costs from central banks. However, overall, investors are right: monetary restriction cycles are over, and a favorable easing of monetary policy should follow, benefiting risky assets and BTC/USD.
Technically, on the daily chart of Bitcoin, bulls are once again attempting to storm the pivot level of 37,750. Success in this endeavor will allow counting on the continuation of the BTC/USD rally to 39,750 and 40,820 and serve as a basis for purchases.
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