Bitcoin’s (BTC) surge of 7.6% between April 6 and April 8, reaching a peak of $72,747, has sparked speculation about its underlying causes. While some may point to inflows from spot Bitcoin exchange-traded funds (ETF) as the main factor, it is more likely that various macroeconomic factors have played a significant role in the recent price rally.
It is misguided to assert that the surge in BTC’s value was solely due to the purchase of $500 million in Bitcoin by the Ethena stablecoin USDCe as collateral. For example, MicroStrategy’s acquisition of 9,245 Bitcoin, valued at over $600 million on March 19, did not prevent a 13.7% drop in BTC price in the following six days. With Bitcoin’s daily spot volumes exceeding $10 billion, such inflows are relatively insignificant.
The expectations of investors regarding the economy and cost of capital should not be underestimated. Periods of increased liquidity and monetary policies aimed at stimulating consumption and growth typically benefit scarce assets, particularly during times of persistent inflation when salaries and prices rise alongside the availability of money.
Jamie Dimon, CEO of JPMorgan Chase, recently indicated in a shareholder letter that the resilience of the U.S. economy could lead to higher inflation and rates than expected. This insight partially explains why gold ETF instruments are trading at a premium in China, as investors prepare for inflationary pressures due to the U.S.’s precarious fiscal debt situation.
Eric Balchunas, a senior ETF analyst at Bloomberg, has noted that Chinese investors are eager to buy assets unlinked to their own economy and stock market, leading to gold ETFs trading at a 30% premium in China. The U.S. government’s deficit is further strained by a $1.2 trillion spending package approved on March 23 and President Joe Biden’s proposal to forgive up to $20,000 of student debt for 23 million borrowers, regardless of income, heightening concerns over fiscal sustainability.
While one might argue that these dynamics do not inherently favor Bitcoin, as heightened inflation reduces disposable income and escalating U.S. debt may lead to an economic downturn, predicting investor reactions to such occurrences is challenging. Bitcoin’s correlation with traditional assets like stocks and gold fluctuates, making it difficult to determine its response.
Additionally, escalating trade tensions between the U.S. and China may have contributed to the increased interest in both gold and Bitcoin. Notably, gold prices reached a record high of $2,354 on April 8, coinciding with the U.S. Treasury 2-year yield reaching its highest level in over four months at 4.79%. Typically, gold’s value weakens when investors favor yields from fixed-income investments, but this trend was absent during the recent surge.
On April 8, U.S. Treasury Secretary Janet Yellen revealed that the administration is considering potential tariffs on subsidized Chinese energy products, including solar panels, lithium-ion batteries, and electric vehicles. Yellen also suggested that other countries might impose trade restrictions against China. In this context, the surge in Bitcoin’s value to $72,000 on April 8 may be attributed to investors seeking a hedge against the deteriorating state of global economic relations and the consequences of U.S. government stimulus initiatives, rather than sporadic and unpredictable Bitcoin inflows from specific investors.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making a decision.