Much like the accelerating pace of change in this modern world, the state of crypto too is constantly in flux. The next big thing is often quickly yesterday's folly and what would have been considered an amazing price level to be at just a month ago has now got people questioning their bullish outlook... At the end of February Bitcoin broke out of the $43k to $51k trading range it had been tracing for the preceding 3 months in  dramatic fashion, quickly reaching a new ATH of $74k on March 14th*. However, this euphoria was short-lived with BTC price collapsing over 15% back to around $60k within the space of just a few days*. 

There are two primary causes currently being espoused for the pullback. First is a slowing of the ETF inflows alongside further GBTC selling and the second is a surprisingly hot US CPI print leading to a fall in risk assets across the board, as expectations for rate cuts get pushed further back. In terms of the ETF flows, many have been surprised by the fickle nature of what we’ve seen so far; with daily inflows hitting approximately $1B on March 12th, followed quickly by net outflows of almost $500m on the 11 Bitcoin US ETFs across 18th-19th March^.

Returning now to the secondary factor: the market’s concern around sticky inflation in light of the recently higher than expected monthly CPI prints. Despite the recent uptick on CPI, Jerome Powell and the Federal Reserve remain confident that they can reach their longer-term goal of bring inflation back to 2% and so intend on maintaining their schedule of three rate cuts later in the year. 

What’s interesting to note is that as Bitcoin becomes further entrenched within the wider financial world (courtesy of the ETFs), it’s likely that macro events such as higher than expected CPI will have a greater pull on the price of Bitcoin than they have previously where Bitcoin and crypto have flip-flapped with a correlation to other risk assets like the Nasdaq or SPX.

Beyond Bitcoin, this past month has seen the latest upgrade to the Ethereum protocol take place on 13th March. The Dencun upgrade, as it’s known, should have wide-bearing, positive effects for Ethereum’s ability to scale in the longer term through the creation of ‘blobs’. That will allow for execution on Layer 2s such as Arbitrum, Base and Optimism to be significantly cheaper, faster and thus more attractive for users. 

Despite this bullish catalyst, price action has remained underwhelming since. Like much of the cryptomarket, Ethereum has nonetheless followed Bitcoin in its trajectory across the month, rallying up to $3.8k towards the backend of February before sharply retracing 16% in one day on March 5th*. From there Ether continued its trajectory upwards, claiming a new local high of over $4k on March 12th, before followed Bitcoin in trading down to as low as $3.1k on the 20th, falling over 25% from its recent high*.

So-called ‘Altcoins’ have in general seen more significant retracements across this period too, but what’s been interesting to note is that Solana remained more resilient than the wider market falling even less than Ethereum in that period (only 22%), with SOL/ETH going above its December high to claim a new ATH<. 

Whether this is indicative of a growing and strengthening ecosystem, buoyed by significant trading volume on memecoins and ecosystem application tokens or simply the case of SOL remaining undervalued compared to previous highs, remains to be seen. Solana’s comparative strength over this period stands out but it has not been without its troubles over the last few months; with a recent outage marring its already poor reputation for uptime alongside reports of a large, discounted sale of SOL from the FTX estate testing the nerves of holders.

Another factor for why Ether may have underperformed of late is that many analysts who were previously bullish on the market, seeing a spot ETH ETF are now pushing expectations further back. One Bloomberg analyst; James Seyffart, has now stated that a spot ETH ETF won't get approved in May, after previously assigning a 35% chance that at least one issuer would receive a green light. 

To make matters worse, news broke on the 20th March that the SEC has subpoenaed a number of companies that had dealings with the Ethereum Foundation in an attempt to acquire information to validate its claim that Ether is indeed a security. Whether successful or not in their efforts to label Ether and other Cryptoassets as securities, it's clear the SEC will not be deterred in its fight, despite reluctantly having to approve the spot BTC ETF and losing both the Ripple Labs and Grayscale legal cases. 

While the ‘up only’ sentiment may have dampened from the new all-time highs, it’s important to note that we are in unchartered territory now as Bitcoin has never hit a new high ahead of a halvening nor had this level of retail and institutional demand and accessibility due to the US spot ETFs. While many have looked at the market as ‘frothy’ and some even imagining we’re nearing the top of this cycle, recall the price action that has followed all prior halvenings. As supply gets cut in half in just less than a month, with retail attention coming back to the space and a swathe of institutions needing to stock up for their ETF, market commentators have widely referenced the high unlikelihood that we do not follow the trend of previous cycles and trend higher from here.

As always please send any feedback, suggestions or comments to the Team mailbox.

Best Oliver Wink, on behalf of the Digital Assets team.

*Data sourced from Bloomberg

^Data sourced from Farside Investors

<Data sourced from Trading View