Bitcoin Reaches $57,000 as Investors Cheer ETF Inflows

Bitcoin Reaches $57,000 as Investors Cheer ETF Inflows

According to CoinDesk data, bitcoin traded as high as $57,600 during the Asian session, the highest level since November 2021. The CoinDesk 20 index, which tracks the performance of the top 20 cryptocurrencies by market capitalization, also rose by nearly 6%.

One of the main drivers of the rally is the increasing demand for bitcoin from institutional and retail investors, who see the cryptocurrency as a hedge against inflation and a store of value. The launch of the first spot ETFs in the U.S. in February has provided a new avenue for exposure to bitcoin, as well as increased liquidity and price discovery.

Bitcoin is off less than 20% from its record high reached in November 2021. AFP/GETTY IMAGE


The spot ETFs, which track the price of bitcoin directly rather than through futures contracts, have seen record volumes on Monday, as bitcoin gained 6% during the U.S. trading hours. According to data from CryptoCompare, the ProShares Bitcoin Strategy ETF (BITO) traded over $1.3 billion, while the Valkyrie Bitcoin ETF (BTF) traded over $200 million.


Markus Thielen, founder of 10X Research, who predicted bitcoin’s rise to $57,000, said that traders are becoming more confident that the halving and the ETF inflows will be bullish for bitcoin. The halving, which occurred in May 2020, reduced the supply of new bitcoins by 50%, creating a supply-demand imbalance that favors price appreciation.

However, the rally has also increased the cost of holding leveraged bullish bets in perpetual futures, which are contracts that have no expiry date and use a funding rate mechanism to keep the prices in line with the spot market. A positive funding rate means that traders who are long or buying bitcoin have to pay a fee to those who are short or selling bitcoin.

The annualized funding rate in bitcoin perpetual futures listed on Binance, the world’s largest crypto exchange by trading volume, surpassed 100% for the first time in at least a year, according to data from Velo Data and CoinGlass. Funding rates on other exchanges, such as Bybit and Deribit, also rose to 95% and 56%, respectively.

These elevated funding rates indicate that the market is skewed bullish, and that there is a lot of leverage in the system. This also creates an opportunity for arbitrageurs, who can profit from the price difference between the spot and the futures market, without taking any directional risk.

Thielen said that the high funding rates are providing crypto hedge funds with exceptionally attractive arbitrage spreads. He explained that arbitrageurs can short perpetual futures and buy bitcoin in the spot market, pocketing the premium and avoiding the price volatility.

While the high funding rates could also signal a potential leverage washout, where a sharp price drop triggers a cascade of liquidations, Thielen said that he is not worried about a major correction. He said that he expects bitcoin to continue its upward trajectory, and reach $100,000 by the end of the year. 



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