Written by: Yves, Head of Trading at Wirex
The Bitcoin price reached a new all-time-high on Wednesday at $69,000. Like most traditional markets, the cryptocurrency market is supported by higher US inflation expectations, and the Fed’s reluctance to tighten the monetary policy more aggressively.
The 5-Year and 10-Year breakeven inflation rates recorded by the Federal Reserve Bank of St Louis reached new highs this week at 3.08 for the 5Y rate and 2.70 for the 10Y rate. These levels have never been reached in the past 15 years.
When high inflation levels would have ‘reasonably’ triggered a tighter monetary policy, Federal Reserve Chair Jerome Powell holds instead that rates are high because of supply shortages. He explains that the health crisis damaged the supply chain, and believes that inflation will calm down in the course of 2022, once the supply chain is restored. If the high inflation phenomenon turns out to be temporary, then tightening the monetary policy too fast could hurt the economy further. On the other hand, keeping inflation loose could hurt consumption and drive the economy into a recession. Meanwhile, all traditional and cryptocurrency markets are thriving on the high monetary supply.
On-chain and off-chain data are also bullish for the main cryptocurrency as the ‘BTC All Exchanges Netflow’ reported by Cryptoquant is again negative this week. The available Bitcoin supply is decreasing. The traditional Bitcoin suppliers, including miners; are not over-selling. In fact, the ‘BTC All Miners Reserve’ looks rather steady.
On the institutions front, investors were looking forward this week to the SEC’s decision over the approval of the VanEck Bitcoin ETF. This ETF could have been the first Bitcoin spot ETF to be approved in the US. But chances to have this approval go through are very slim as the SEC calls for more regulation and ‘investor protection’ in the sector.
Regarding the market’s leverage, the Aggregated Open Interest of BTC Futures across twelve centralized exchanges, is currently stable but still near its all-time-high. The demand for BTC futures is slower: panic buying is dying down. The December and March future implied rates dropped back to more reasonable levels (13% to 14% for the March and December futures, versus 15% to 20% last week), although the term structure of interest rates shows that we are still in a speculative regime. In particular, the December future implied annualized rate is still above the March future.
The Ether price also reached a new all-time-high at $4,868 this week. It is still supported by positive expectations for the last step of the protocol’s transition towards Proof-of-Stake (ETH2). This event, namely the “Merge”, is now scheduled for May 2022. 16,500 additional ETHs have been staked on the BeaconChain this week, and an equivalent amount the week before. 16,500 ETHs represents nearly $75m worth of Ether. The ETH supply is slowly absorbed by the BeaconChain, but also by the various DeFi protocols that are built on the Ethereum blockchain. The Total Value Locked in Ethereum-based DeFi projects (TVL) soared to a record $110 billion three days ago.
Last but not least, the number of Ethereum daily transactions also peaked with Facebook’s ‘metaverse’ announcement on October 28th.
With the Metaverse perspectives, the upcoming Merge, and the decrease in ETH supply, the Ether price could very well be targeting $6,000 before the end of the year.
data taken at 12:14pm 12/11/2021
The above is an opinion piece and therefore should not be taken as financial advice. Please do your own research thoroughly when looking at Cryptocurrency.