Bitcoin’s Dip and Liquidity Concerns

Bitcoin is currently trading below the average spot ETF purchase price of about $58K, and this could trigger liquidations, warns a report from Standard Chartered.

The bank predicts that bitcoin could reach as low as $50K–$52K on the downside as ETFs Investors pulled  out of U.S.-based spot bitcoin exchange-traded funds (ETFs) at the fastest pace since the funds began trading on January 11.

The 11 ETFs including Fidelity’s FBTC led the outflows, followed by  Grayscale Bitcoin Trust ETF (GBTC), ARKB and IBIT which saw a cumulative net outflow of $563.7 million, extending a five-day losing streak, with nearly $1.2 billion withdrawn since April 24.

Even though Federal Reserve (Fed) chairman Jerome Powell dismissed the prospect of a rate hike, investors dumped U.S.-based spot bitcoin ETFs.

The decline seems to be due to a combination of crypto-specific and macro factors.

Hong Kong Spot ETF Launch and Buying Recommendations

The recent Hong Kong spot ETF launch did not receive positive attention. The launch’s turnover volume of $11 million was the focus, and little attention was paid to the net asset position of the new ETFs.

The report suggests buying bitcoin if it reaches the $50K-$52K range or if the U.S. Inflation (CPI) on the 15th is friendly.

Federal Reserve’s Decision and Treasury’s Program

The Fed on Wednesday kept the benchmark interest rate unchanged between 5.25% and 5.5% as expected.

During the press conference, Powell said the economy is too strong to cut rates while pushing back against fears of renewed rate hikes or liquidity tightening stoked by recent disappointing inflation figures.

The Fed also said it will significantly minimize its alternate liquidity tightening program, called quantitative tightening (QT), starting June.

Meanwhile, the U.S. Treasury announced a program to buy back billions of dollars in government debts for the first time in over two decades to improve liquidity in the bond market.

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Bitcoin’s Sensitivity to Liquidity Conditions and Latest Developments

Like other risk assets, bitcoin is sensitive to expected changes in liquidity conditions and witnessed a brief gain following Powell’s comments.

However, the rally was short-lived, with bitcoin falling back to $57,300 at press time.

Early this week, Asia’s first spot bitcoin and ether (ETH) ETFs debuted in Hong Kong with disappointing volumes, worsening the mood in the crypto market.

Keep an eye on the situation by following the news.