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Research Note: Making sense of bitcoin’s recent move 


This week, bitcoin rose above $30,000 and extended a rally late yesterday to reach $35,000, its highest price since May 2022. What exactly is going on?


Spot ETF race is inching closer to a resolution

In the past few weeks, the spot bitcoin ETF race has shown clear signs of maturation, with the SEC choosing not to appeal a US court’s ruling regarding Grayscale’s filing for conversion of GBTC to a spot ETF. Yesterday, BlackRock updated its spot bitcoin ETF filing and listed the still-not-approved product on the Depository Trust & Clearing Corp (DTCC) before it was removed today. Both actions were perceived by the market as an indication of a forthcoming launch. However, there is more to bitcoin’s price appreciation than speculation over a spot ETF.


Macro uncertainty is leading to a flight-to-quality to bitcoin

Macro uncertainty has been even more on the table since mid-September, when longer rates of US treasuries reached values unseen since before the great financial crisis, putting pressure on bond and equity markets worldwide. This comes in an already delicate environment where US government debt has ballooned and deficits are very likely to continue increasing. On top of this is the ongoing conflict in the Middle East, which can potentially have far-reaching consequences in geopolitics, inflation, and the forward economic outlook


This confluence of macro uncertainties led Bill Ackman yesterday to cover his bet against 30-year US Treasuries started in August, stating that there is “too much risk in the world” to bet against bonds. And while crypto was largely impacted by a risk-off environment in 2022, these latest events have actually impacted bitcoin positively, with the asset performing alongside gold and in opposition to equities amidst a very uncertain and volatility macro setting. In particular, last week, following the fake news around the approval of the spot bitcoin ETF filed by BlackRock, Larry Fink, its CEO, publicly affirmed that the move in bitcoin was in fact not a reaction to another rumor around the bitcoin ETF race in the US, but rather a “flight-to-quality”.


Performance of bitcoin, gold and equities since the Hamas attack in Israel

Source: TradingView (accessed October 24, 2023)


Bitcoin’s volatility is coming back from lower levels

As we remarked in a recent article, historically there’s been a link between bitcoin’s low volatility regimes and outsized returns for investors that stay allocated to the asset for a full year. In particular, we were in a low volatility regime (< 40%) earlier this summer, and August gave us a glimpse of bitcoin coming back to a higher volatility environment, which—if history were to repeat—could trigger a leg up for prices. With the recent moves in the past couple of weeks, this scenario is potentially shaping up, with the implied volatility for bitcoin options jumping from 40 to above 65 in only 14 days, the back end of such a move happening alongside short liquidations of little over $160M in the past 24 hours.


Bitcoin implied volatility index since mid September 2022

Source: TradingView (accessed October 24, 2023)



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