Bitcoin’s price experienced a significant increase of 7.6% between April 6 and April 8, reaching a peak of $72,747. This surge sparked speculation about the underlying causes, with some attributing it to inflows from spot Bitcoin exchange-traded funds (ETFs). However, a closer look reveals that various macroeconomic factors likely played a key role in driving Bitcoin’s recent price rally.
It is unreasonable to claim that the surge in Bitcoin’s value was solely due to the purchase of $500 million in Bitcoin by the Ethena stablecoin USDCe as collateral. For example, when MicroStrategy acquired 9,245 Bitcoin valued at over $600 million on March 19, it did not prevent a 13.7% drop in BTC price in the following six days. Considering that Bitcoin’s daily spot volumes exceed $10 billion, such inflows are relatively insignificant.
Investors’ expectations regarding the economy and the cost of capital should not be underestimated. During periods of increased liquidity and monetary policies aimed at stimulating consumption and growth, scarce assets tend to benefit. This trend is further amplified during times of persistent inflation, when salaries and prices rise to match the increasing availability of money.
Jamie Dimon, CEO of JPMorgan Chase, recently suggested in a shareholder letter that the resilience of the U.S. economy could lead to stickier inflation and higher rates than expected by the market. This insight partially explains why gold ETF instruments are trading at a premium in China, as investors anticipate inflationary pressures due to the U.S.’s precarious fiscal debt situation.
Eric Balchunas, a senior ETF analyst at Bloomberg, noted that Chinese investors are eager to buy assets unlinked to their own economy and stock market. This has led to gold ETFs trading at a 30% premium in China. The U.S. government’s deficit is further strained by a $1.2 trillion spending package approved on March 23 and President Joe Biden’s proposal to forgive up to $20,000 of student debt for 23 million borrowers, regardless of income. These factors contribute to concerns over fiscal sustainability.
One might argue that the aforementioned dynamics do not inherently favor Bitcoin, as heightened inflation reduces disposable income and the escalating U.S. debt is likely to lead to an economic downturn. However, predicting how investors will react to such occurrences is challenging, given Bitcoin’s fluctuating correlation with traditional assets like stocks and gold.
Additionally, escalating trade tensions between the U.S. and China may have fueled the increased interest in both gold and Bitcoin. Interestingly, gold prices reached a record high of $2,354 on April 8, coinciding with the U.S. Treasury 2-year yield reaching its highest level in over four months at 4.79%. Normally, gold’s value tends to decline when investors favor yields from fixed-income investments, but this trend was absent during the recent surge.
On April 8, U.S. Treasury Secretary Janet Yellen revealed that the administration is considering potential tariffs on subsidized Chinese energy products, including solar panels, lithium-ion batteries, and electric vehicles. Yellen also mentioned that other nations might impose trade restrictions against China. In this context, the surge in Bitcoin’s value to $72,000 on April 8 may be attributed to investors seeking a hedge against the deteriorating state of global economic relations and the consequences of U.S. government stimulus initiatives, rather than being driven by sporadic and unpredictable Bitcoin inflows from specific investors.
It’s important to note that this article does not provide investment advice or recommendations. All investment and trading decisions involve risk, and readers should conduct their own research before making any decisions.