Comment by Invesco (Ashley Oerth)
Recent price action has primarily been driven by flows, in my view. The two recent jumps in Bitcoin prices, from Feb 8-16 and Feb 26-28 coincided with $3.2 billion USD and $1.7 billion USD of net inflows, making up almost two thirds of the total US ETF inflows so far of $7.5 billion. This contrasts with the experience at the initial launch of the spot bitcoin ETFs in January, when inflows into the newly launched ETFs were roughly balanced against outflows from the Grayscale Bitcoin Trust, the largest Bitcoin fund in the world. This began to turn at the end of January, and since then Bitcoin prices have accelerated.
The halving narrative may also be giving Bitcoin a boost. A Bitcoin halving is when the rate of supply increase cuts in half according to a pre-defined schedule. In the past, halvings have been associated with sharply higher prices in the following year. Previous halvings took place in 2012, 2016, and 2020 - all of which were followed by higher prices. The next halving is expected on or around April 22.
However, halvings matter less over time. By definition, Bitcoin supply increase halvings become less impactful over time. When the first Bitcoin halving took place, total bitcoin supply was growing at a rate of around 25% per year and then fell to 12.5% with the halving in November 2012. Today, supply is growing at about 1.7% per year and will fall to a rate of growth of about 0.8% per year in April. Despite this, the halving narrative still appears to carry some weight, with some analysts expecting the halving to nevertheless help drive positive sentiment around bitcoin.
In our view, Bitcoin is driven primarily by sentiment - which history suggests may be peaking. Sentiment has tended to peak around major institutional moments, such as the launch of bitcoin futures products, bitcoin futures ETFs in the US, and now spot ETFs. I believe we may be in another one of those peaks, but the fact that we have an easier on-ramp for a wider set of buyers who are comfortable with the ETF structure suggests continued buying support for Bitcoin , which should help prices.
Bitcoin is also driven in large part by the financial conditions backdrop, which is likely to ease in the period ahead. As bitcoin and other cryptocurrencies have matured, they have become increasingly affected by the broader market and macro backdrop, with risk appetite and discount rates becoming increasingly relevant in pricing bitcoin. Global money supply growth in particular has been a helpful directional indicator for Bitcoin market capitalization. In our view, financial conditions are likely to ease over the course of the next 12 months, which may lend support to Bitcoin prices.
We believe Bitcoin has further to run in the near-term. The factors above suggest Bitcoin prices are likely to see continued near-term strength, but eventually sentiment will return as a key driver. Because Bitcoin has few real-world economic use cases, we believe bitcoin remains at the mercy of investor sentiment. The next big moment for cryptocurrencies should become increasingly important, which may include potential major investor adoption of Bitcoin , the possibility of Ether ( Ethereum ) ETFs, or similar milestones.
