Bitcoin’s current rally: Same story, different cycle?

When Bitcoin’s price skyrocketed to a jaw-dropping record high this past week, for a hot minute, it seemed like the notorious roller coaster of cryptocurrency scandals and gut-wrenching sell-offs had finally pulled into the station for good. But, as quick as lightning, the price took a nosedive, slapping us with the cold, hard truth: the beast of volatility is always lurking, ready to pounce at anytime.

This year, Bitcoin flaunted a 60% increase in value, hitting the roof at just over $70,000. The spotlight shines bright on institutional investors, who seem to be the puppeteers pulling the strings behind this dramatic curtain rise. According to financial experts at Deutsche Bank, the green light on new spot Bitcoin ETFs in the U.S. has been like opening the floodgates to nearly $8 billion in funds since January 10th. The cash flow into BlackRock’s and Fidelity’s funds alone is enough to make your head spin, with inflows topping $9.2 billion and $5.3 billion, respectively. Yet, this fiesta could have been even more lavish if not for the party poopers at Grayscale, who saw nearly $10 billion walk out the door after switching to an ETF, likely chasing after the new, shinier, lower-cost attractions.

Deutsche Bank’s Marion Laboure said that the crypto market is slowly but surely getting a makeover with a more institutional vibe, as the traditional finance bigwigs elbow their way in. Coinbase, with its regulated futures exchange, broke its own records at the end of February in terms of notional volume. It’s becoming a hot spot for the whales looking to offload their Bitcoin stash. This influx of institutional money is yanking the market away from its roots. The stats are staggering: regulated investment vehicles now cradle over 1 million Bitcoins, a stash that’s grown by 161,700 this year alone, thanks to Uncle Sam’s ETFs. This amounts to over 5.13% of all Bitcoins out there.

The SEC’s white flag in the ETF battle marked a major shift. Gary Gensler, SEC’s chair, may have dragged his feet, but eventually, he unwittingly tipped the scales in favor of stateside, regulated investment vehicles. Meanwhile, the retail investors, who once rode the Bitcoin bull to staggering heights in years past, might feel like they’re watching the parade from the sidelines. Sure, the meme coin craze flickers with signs of life, with Dogecoin doubling up and the new kid on the block, dogwifhat, skyrocketing 800% from a base that’s practically the bottom of the barrel.

Yet, as the Bitcoin price swing showed us this week, we’re not exactly witnessing a tamed, institutionalized crypto market. It feels more like the same old wild ride, just with new tracks laid down. However, price setting and discovery are non-negotiables. Crypto exchanges are where the magic happens, facilitating spot trading that helps peg prices to reality.

Last week, when the market was bubbling with froth, Bitcoin trading volumes blasted past the $40 billion mark, a spectacle not seen since the 2021 sell-off. Analysts at Kaiko Research pointed out the stark contrast in buying behaviors between Binance and U.S. exchanges, painting a vivid picture of the market’s dynamics.

The curious case of Bitcoin’s price movements continues to baffle many. While some might credit the ETFs for the recent surge, this reasoning seems to put the cart before the horse. The demand surge meets a market still characterized by relatively thin trading volumes, amplifying the impact of transactions on prices. Recent data shows a slight uptick in the percentage of Bitcoins changing hands, but nothing to write home about. The bulk of the market remains tightly held for the long haul, shy of the trading floors.