Bitcoin's Price Defying The Gravity Of ETF Flows
Also Bitcoin's Risk-Adjusted Returns Drop In February & Core PCE Inflation Is Too Damn High
Welcome to Ecoinometrics' Friday edition.
Each week, we analyze the three most critical market signals impacting Bitcoin and macro assets, delivering institutional-grade insights through data-driven charts and analysis.
Today we'll cover:
Bitcoin’s Price Defying The Gravity Of ETF Flows
Bitcoin's Risk-Adjusted Returns Drop In February
Core PCE Inflation Is Too Damn High
In case you missed it, here are the other topics we covered this week:
Essential Decision-Making Tools
Bitcoin Market Monitor - Key Drivers in Six Charts:
Bitcoin Market Forecast - Probability Scenarios & Risk Metrics:
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Bitcoin's Price Defying The Gravity Of ETF Flows
Over the last few days, Bitcoin has been defying gravity. Much of this movement likely came from anticipation of a US Bitcoin reserve announcement.
Now we have that announcement, and its contents are unsurprising. My understanding is the US is establishing a Bitcoin reserve, which helps legitimacy. However, they're only including previously seized Bitcoin and what they can acquire through fiscally responsible means.
Here's the key point: the US isn't going to follow MicroStrategy's approach of aggressive Bitcoin accumulation.
The main outcome is political legitimacy for Bitcoin. While positive, this isn't something that should drive a major price surge at this point.
So what factors remain to keep Bitcoin's price in the higher range?
The list is shrinking.
Without a significant tech stock recovery, Bitcoin will likely drift lower based on ETF flow momentum, currently the dominant price driver.
Our ETF flows model shows Bitcoin at $88,000 is trading high in the expected price range, which averages $74,000 (see chart below, now included in our daily-updated Bitcoin Market Monitor).
Without renewed ETF inflows, Bitcoin is more likely to consolidate at a lower price.
Bitcoin's Risk-Adjusted Returns Drop In February
Bitcoin's attractiveness in portfolios comes from its ability to deliver strong returns, both absolute and risk-adjusted.
Throughout most of last year, Bitcoin outperformed all major macro assets on both metrics. It surpassed gold and significantly outperformed US stock indices.
But markets can’t always go up and to the right. During real downturns or significant dips, Bitcoin faces substantial downside volatility. And this volatility erodes risk-adjusted returns.
This is clear in February's performance. Bitcoin's returns have fallen to match gold's level (though still strong on a 12-month basis), while its risk-adjusted returns now align with the stock market.
You can see it on the chart below which shows the 12-month returns vs risk adjusted-returns for a range of macro assets.
This serves as a crucial reminder: Bitcoin isn't a safe haven. It typically trades like a high-growth tech stock. Its real advantage emerges during periods of strong growth or significant monetary debasement, when it substantially outperforms other assets.
Understanding this dynamic helps clarify Bitcoin's role in your portfolio.
Core PCE Inflation Is Too Damn High
Federal Reserve models suggest a serious risk of GDP decline this quarter.
Surprisingly, this might align with the Federal Reserve's goals. They need a significant shift in economic conditions to get inflation under control.
Last week's PCE data shows inflation remains stubbornly high. The Fed's options for addressing this are limited.
However, there's one notable development: a significant drop in PCE core services inflation. This is particularly important because core services, driven largely by wage growth in the labor market, has been the main factor keeping inflation elevated since late 2023.
One month's data doesn't establish a trend, so the Fed won't act on this alone. If core services inflation is declining due to broader economic slowdown, the impact on risk assets could be mixed.
We're facing familiar risks from 18 months ago:
Stubborn inflation forcing continued Fed hawkishness
Economic slowdown that could tame inflation but hurt risk assets in the near term
The macro picture remains unclear, making it difficult to predict how these factors will influence Bitcoin's trajectory.
That's it for today. Thanks for reading.
Cheers,
Nick
P.S. Every week, our team conducts extensive research analyzing market data, tracking emerging trends, and creating professional-grade charts and analysis.
Our mission: Deliver actionable macro and Bitcoin insights that help institutional investors and financial advisors make better-informed decisions.
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