Source: Zhitong Finance

Bitcoin's absolute dominance in the cryptocurrency sector is at its strongest point in three years, reflecting strong market demand for a US Bitcoin spot ETF that tracks the world's largest digital asset, and that smaller cryptocurrencies are facing a period of intense turmoil as expectations of the Federal Reserve's interest rate cuts ebb. Statistics show that Bitcoin, a cryptocurrency, accounts for more than half of the $2.4 trillion crypto market. This largely reflects the strong demand for Bitcoin spot ETFs approved by the US SEC and the sharp decline in the market value of smaller tokens.

According to the latest data from CoinMarketCap, as of the end of last week, Bitcoin occupied nearly 55% of the market capitalization share in the $2.4 trillion cryptocurrency market. This is the highest level since April 2021. The whole year of 2021 can be described as a Bitcoin bull market. Measured by the total market capitalization index, starting from second place, they are Ethereum, the stablecoin Tether, and the native tokens of the Binance exchange, BNB and Solana.

According to information, this batch of US Bitcoin spot ETFs launched three months ago by well-known issuers such as US asset management giant BlackRock Inc. (BlackRock Inc.) and Fidelity Investments (Fidelity Investments) has accumulated assets of about 56 billion US dollars so far this year, and is one of the most successful initial products in the history of this exchange-traded fund category.

The continued inflow of funds from these ETFs propelled Bitcoin to a record $7,3798 in mid-March this year. But since then, spurred by profit settlement sentiment and a sharp cooling in expectations of interest rate cuts from the Federal Reserve, the price of Bitcoin has fallen by about 6%, while an indicator measuring a smaller cryptocurrency asset class has fallen by more than 30%.

In recent times, expectations of America's loose monetary policy have declined markedly in the cryptocurrency market, and generally speaking, loose monetary policy expectations may encourage speculative cryptocurrencies, which are basically concentrated on cryptocurrencies with smaller market capitalization.

Strong institutional demand

Benjamin Celermajer (Benjamin Celermajer), head of digital asset investment management company Magnet Capital, said that institutional investors generally allocate the share of US Bitcoin spot ETFs “resulting in a very strong performance of Bitcoin compared to other crypto markets.”

Bitcoin and second-ranked Ethereum both rose sharply on Monday, mainly due to signs that some asset managers will soon launch these two cryptocurrency ETFs listed in Hong Kong. As of Tuesday's early trading session, the price of Bitcoin was hovering around $63,400, down about 3%, while Ethereum was up about 1%, hovering around $3,100. Smaller cryptocurrencies, such as Polygon, Cardano, and the most popular Dogecoin (Dogecoin), are less expensive.

Since the beginning of last year, the Bloomberg Galaxy Crypto Index (Bloomberg Galaxy Crypto Index) has seen a sharp rebound from the deep cryptocurrency bear market in 2022 and has more than tripled.

Cryptocurrency speculators are awaiting the so-called “Bitcoin halving” event, which will cut the size of Bitcoin's new supply in half, and is expected to be around April 20. The previous halving point was a very obvious tailwind factor for Bitcoin's price, but given that Bitcoin's price recently reached an all-time peak, people are increasingly skeptical that this will happen again.

Bitcoin ETFs are expected to usher in larger inflows in the future

JMP Securities, a well-known investment agency on Wall Street, said in a recent research report that it is estimated that in the next three years, spot ETFs that track Bitcoin (BTC) may have a capital inflow of up to 220 billion US dollars, which means that if a multiplier is applied to new capital estimates, the Bitcoin price may quadruple to reach 280,000 US dollars.

“Although the scale of capital inflows to spot Bitcoin spot ETFs broke our expectations and reached $10 billion just two months after launch,” analysts at JMP Securities emphasized in the report: “The activity and capital flow so far may still be the tip of the iceberg.” It also added that capital flows will continue to grow significantly because the formal regulatory approval of the US Bitcoin Spot ETF is only the beginning of a “longer capital allocation process.”

“We estimate that up to $220 billion of incremental capital will flow into Bitcoin spot ETFs over the next three years. Considering the capital multiplier effect, this may also have a considerable impact on the price of Bitcoin,” JMP Securities analysts led by Devin Ryan (Devin Ryan) wrote.

Wall Street's recent bullish calls for Bitcoin are getting louder and louder. Standard Chartered Bank predicts that Bitcoin will reach 100,000 US dollars by the end of this year; hedge fund SkyBridge predicts that Bitcoin will reach 170,000 US dollars by April 2025.

Furthermore, at a time when the Bitcoin transaction price once soared above $73,000 and continued to reach new all-time highs, venture capital funds from cryptocurrency startups are fully returning to the cryptocurrency sector, and venture capitalists around the world are re-entering the cryptocurrency sector.

According to the latest data, after a “cruel” year for cryptocurrency and blockchain-related companies, the volume of venture capital investment in the industry increased by nearly one-third compared to the previous quarter (that is, the fourth quarter of 2023). Venture capital funds from around the world are beginning to refocus on the cryptocurrency market, which often means a full recovery in the market's capital risk appetite.

edit/lambor