Bitcoin's Latest Surge Above $50,000 Defies Conventional Wisdom
Bitcoin Surges Over 35% Despite Strong Dollar and Rising Treasury Yields
Bitcoin has once again defied expectations by surging over 35% to surpass the $52,000 mark, highlighting its reputation for making double-digit gains within a short period of time. However, what makes this surge particularly noteworthy is the fact that it has happened alongside a resurgent U.S. dollar index (DXY) and rising Treasury yields.
Historically, Bitcoin Has Been Negatively Correlated with the U.S. Dollar
Typically, Bitcoin has seen significant rallies only during times when the U.S. dollar was weak. For example, when Bitcoin first rose above $50,000 in February 2021, the DXY fell 2% to under 90. As the U.S. dollar strengthens, it leads to financial tightening globally, discouraging investments in risky assets like cryptocurrencies and technology stocks.
Rising Treasury Yields Usually Trigger Outflows from Other Assets
In addition to the strong dollar, rising Treasury yields have also failed to hinder Bitcoin's growth. The 10-year U.S. Treasury yield has increased from 4.10% to 4.26% in just three weeks, which typically leads to outflows from other assets. However, Bitcoin has remained resilient, possibly due to the influx of funds into U.S.-based spot exchange-traded funds.
Strong Inflows into U.S.-Based ETFs May Be Driving Bitcoin's Surge
Since January 11, nearly a dozen U.S.-based ETFs have seen approximately $5 billion in net inflows. This suggests that investors are showing confidence in the cryptocurrency market, despite the strong dollar and rising Treasury yields. Some analysts believe that this may be due to increased "safe-haven" buying from countries like China and Nigeria, as well as speculative inflows anticipating the growth of the investor base and the upcoming halving event.
China and Nigeria's Economic Challenges Fuel Bitcoin Demand
China, the world's second-largest economy, has been facing deflationary pressures, a property market crisis, and a stock market meltdown. As a result, Chinese citizens have turned to Bitcoin as a hedge against economic uncertainty. Similarly, Nigeria's ongoing currency crisis and rampant inflation have also likely contributed to the country's increased demand for cryptocurrencies.
Bitcoin Futures Margin Increase Potentially Contributed to the Surge
According to QCP Capital, the decision by the CME to raise the required margin for trading Bitcoin futures may have played a role in the cryptocurrency's recent rally. This change led to widespread short covering, driving both spot prices and forwards higher. QCP Capital also noted that the forward spread trade in BTC is now back to around 11-12% annually.
Overall, Bitcoin's surge above $50,000, despite the strong dollar and rising Treasury yields, suggests that the cryptocurrency market is experiencing a significant shift in momentum. With increased inflows into U.S.-based ETFs and growing demand from countries facing economic challenges, Bitcoin continues to defy conventional wisdom and solidify its position as a unique investment opportunity.
Analyst comment
Positive news: Bitcoin has jumped over 35% since Jan. 23, reaching over $52,000, indicating its reputation for double-digit gains. Strong inflows into U.S.-based spot ETFs, particularly from China and Nigeria, may be driving the rally as these regions face economic challenges. The CME’s decision to increase required margin for bitcoin futures trading may have also contributed to the rally.
As an analyst, the market is likely to continue experiencing volatility with potential upsides due to increased inflows from regions seeking safe havens and emerging technology plays. The bitcoin rally may also be influenced by the CME’s margin requirement change. However, the market may face pressure if the U.S. dollar strengthens further or if there are significant outflows from risky assets.
