Bitcoin is drifting below the post-halving trajectory
Also Bitcoin ETF inflows are drying up and how big are the upcoming rate cuts?
Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.
Today we'll cover:
Bitcoin is drifting below the post-halving trajectory.
Bitcoin ETF inflows are drying up.
How big are the upcoming rate cuts?
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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Bitcoin Drifts Below the Post-Halving Trajectory
If you believe Bitcoin is bound to diminishing returns, you might feel vindicated by this year's price action. Take a look at the chart below.
After each halving, I update this Bitcoin post-halving growth trajectory chart. It shows the range of price trajectories Bitcoin could take, assuming it performs similarly to previous halving cycles.
Many have noted that each halving cycle eventually creates less overall growth than the previous one. This time? The halving cycle has just started, but Bitcoin's growth trajectory is already below the historical range. It's essentially drifting around its starting point.
Here's my take on this situation:
First, Bitcoin isn't bound to always have diminishing returns. Several mega cap stocks perform better after reaching a trillion-dollar valuation than when their market cap was lower. There's no reason Bitcoin can't do the same.
Second, the link between halving cycles and Bitcoin's growth doesn't tell the whole story. In previous bull markets, it was the combination of the halving AND rising global liquidity that allowed Bitcoin to grow rapidly.
This year, we've only had half of the puzzle, probably the less important half, which is the halving. Now we need to see some changes on the macro side to get things moving.
Bitcoin ETF Inflows Are Drying Up
The next chart doesn't look promising. Have you ever seen a dead cat bounce? That's what the chart of rolling Bitcoin ETF inflows resembles.
Early this year, ETFs were buying over 4,000 Bitcoins daily. Then it plummeted to zero in April.
We saw a rebound to 2,000 Bitcoins bought per day in June, only to fall back to zero in July.
Another bounce followed, reaching just under 2,000 Bitcoins daily in July. But it dropped to zero again in August.
Now, demand is flat.
It could be worse. ETF holders could be spooked by the lack of upside and decide to cash out. We haven't seen that yet.
This metric is a good gauge of Bitcoin appetite among average investors. Right now, it suggests that interest in Bitcoin is low.
No surprise then that Bitcoin is edging close to the bearish region in our market regime model.
How Big Are the Upcoming Rate Cuts?
Fed Funds rate futures have a solid track record of predicting Federal Reserve decisions at upcoming meetings.
Typically, a week before the FOMC meeting, the odds give a clear view of what the Fed Funds rate will be after the meeting.
This time, there's some hesitation in the market.
The uncertainty isn't about whether the Federal Reserve will cut rates, that's practically a given. The question is how large this rate cut will be.
Over the past 10 days, the average split has been a 70% chance of a 25bps cut vs. a 30% chance of a 50bps cut.
Some days, the split was closer to 60/40 or even 50/50 than 70/30. But does this really matter?
If you're trading rates, the size of the cut is crucial. For Bitcoin and risk assets, though, the difference is likely negligible. Lower rates have been anticipated for a long time, as financial conditions show. It will take more than even a one-time 50bps rate cut to change the situation significantly.
At next week's FOMC meeting, it's more important to pay attention to the Fed's discourse and the guidance they set for the coming months, rather than the specific decision.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
Cheers,
Nick
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"Right now bitcoin is drifting below the historical range". This statement was true in the 2nd and 3rd cycles too. The average growth line is pointless. No one with an average IQ or above thinks that is going to happen this time. Almost the entire 1st halving trajectory is above almost the entire 2nd halving trajectory which is almost entirely above the 3rd halving trajectory. Can you now infer what will happen for the 4th halving trajectory? Yes, the orange line will almost certainly stay below the yellow line. It's not as sexy and exciting as the average growth line, but there is still good growth ahead.
The ETF flows drying up is kind of a bummer. Hopefully that is more of a sign that big wealth managers aren't pitching them to their clients yet vs the clients declining the opportunity.