The first quarter of 2024 has been positive, in general, for cryptocurrencies. The approval of spot bitcoin (BTC) exchange-traded funds (ETFs) led the queen cryptocurrency to conquer new all-time highs and the market as a whole to receive a strong boost. While these tailwinds appear to have partially dissipated in recent weeks, with BTC falling below $67,000 this Tuesday, Coinbase believes that the next 3 months will be just as positive.
“Many of the headwinds we identified earlier this month are behind us and looking ahead, the setup for Q2 looks more conducive to cryptocurrency performance, in our view. That said, we believe that these positive factors will only manifest themselves more clearly from the second half of April,” the crypto exchange analysts explain in a recently published report.
These experts point out that, despite “liquidity interference from the US holidays” and “end-of-month (and end-of-quarter) corporate rebalancing”, markets are “resisting well.” “Demand for US dollars usually increases at this time of year. Tax season remains a potential catalyst for near-term profit taking. Additionally, we believe that speculators who go short MicroStrategy and long bitcoin may be contributing to some of the recent market volatility“, they add.
For example, the imminent halving of Bitcoin (‘halving’), a process whose completion is estimated to take place on April 20, is the great event to follow from the supply point of view. This process can contribute to increasing market volatility, but also to boosting optimistic sentiment and, therefore, the prices of cryptoassets.
Instead, on the demand side, Coinbase highlights that “the 90-day review period that many wirehouses employ when conducting due diligence on new financial offerings, such as bitcoin spot ETFs, could end.” as soon as April 10,” a process in which they study where to allocate client assets. “Their assessments thoroughly examine whether such products meet investment minimums and liquidity thresholds, as well as whether the required daily trading, custody and regulatory reporting activities impose any insurmountable operational challenges on their existing infrastructure,” they add.
“That said, brokers like Morgan Stanley, Bank of America, UBS and Goldman Sachs are not the only custodians of wealth. Some of the major wealth management platforms operating in the United States exist outside of these large financial conglomerates. Although Three months is the typical (and stated) observation period for money managers like LPL Financial, some also have shorter and longer windows. We believe this could unlock significant capital for spot bitcoin ETFs in the medium term“, they explain from the crypto exchange.
In this sense, Coinbase believes that institutional interest “remains high”. This, they argue, can be seen by observing the level of leveraged short positions in the CME’s bitcoin futures, “which has reached an all-time high of 19,917 contracts as of March 19.” Another positive sign is that the total value locked (TVL) in on-chain derivatives has reached an all-time high of $3.4 billion, although the broader TVL of decentralized finance (DeFi) English) remains around 50% below its highs from the previous cycle.
“BTC and ETH perpetual futures funding rates have risen from 15% to 50% annualized During last week. Open interest in major currencies also continues to rise and is at the highest levels we have seen in over 1 year. With the overall trend up, traders are looking at altcoins for ways to outperform the bull market. However, no winning narrative has yet emerged, so we are seeing capital cycle through sectors at a rapid pace,” Coinbase strategists conclude.