What do you think of the speed at which Bitcoin breaks through new highs this time?
I'm quite surprised at Bitcoin's rapid breakthrough to new highs. This phenomenon exceeded virtually all expectations from the derivatives market. We originally expected the price of Bitcoin to be between $52,500 and $55,000, which was basically in line with the market conditions at the time. Considering that the current interest rate market has high interest rates, increased financing costs, and relatively small financing scales, these factors will usually limit price increases. At the same time, although the United States has approved exchange-traded funds (ETFs), it will take some time for spot ETFs to become popular, and it is not expected that their impact on prices will be particularly large. This time, however, Bitcoin's price rose much more than expected, reflecting that we may have underestimated investor enthusiasm for Bitcoin spot ETFs. It was originally believed that the price of Bitcoin could reach such a level only after the halving event in the second half of this year, combined with the positive impact of macroeconomic policies, such as interest rate cuts and support policies from other countries. But this time Bitcoin’s performance was unexpected. The price not only rose sharply, but even reached a new all-time high. This is indeed surprising.
How much money will U.S. institutions allocate to Bitcoin ETFs? What impact will this have on Bitcoin prices?
There are several key points to consider when it comes to how much capital U.S. institutions will allocate to Bitcoin ETFs and its impact on Bitcoin prices. First, Bitcoin has unique advantages compared to other assets. Compared with foreign exchange, Bitcoin is not directly affected by the policies of central banks of various countries, although it may be indirectly affected by the policies of the Federal Reserve. This makes Bitcoin an asset that can reflect changes in global macro liquidity, especially in liquidity relationships. Additionally, Bitcoin has a low long-term correlation with many assets, making it an important tool for balancing portfolio risk. Relative to gold and foreign exchange, Bitcoin is not only easier to obtain and exchange, but its volatility is higher than most major asset classes, providing higher potential returns.
Regarding institutional allocations to Bitcoin ETFs, 1% is a starting point for some institutions, while this may increase to 2% or more for investors and fund managers with a higher risk appetite . Especially for some special ETFs, the allocation ratio may be as high as 10% or more. Overall, the actual allocation ratio in the market may be higher than 1%, and is estimated to be around 3%, which includes the allocation of most pension funds and some more aggressive fund products.
In the long term, the direction of Bitcoin prices will be affected by a variety of factors, including further reductions in interest rates and investors allocating more funds to Bitcoin ETFs. In the short term, the market's strong purchasing power may push Bitcoin prices above the $70,000 stage target. Subsequently, with the increase in long-term institutional allocation and the influx of large amounts of funds, Bitcoin may exceed the $100,000 mark in the future. This judgment is based on observations of market dynamics and Bitcoin’s role as a liquidity indicator in the global macroeconomy.
Will the Fed cut interest rates in May?
Based on current conditions in the markets and interest rate derivatives markets, the Fed is not expected to cut interest rates in May. A rate cut is more likely to occur in the second half of the year, specifically in June or later. It is expected that there will be no more than three interest rate cuts this year, with each rate cut being 25 basis points. Fed officials, including Powell, have taken a prudent approach and favored a cautious approach to monetary policy. In the context of the current high economic heat, excessive stimulus measures may lead to overheating of the economy, which is a situation that the Fed hopes to avoid. Therefore, it is foreseeable that the Federal Reserve will maintain a relatively cautious attitude on monetary policy in the next few months or even a year. As Powell said recently, the Fed may consider a rate cut in June and observe the economic response in the next one to two months to determine whether further rate cuts are needed. Therefore, the Fed's liquidity release process is expected to be gradual and orderly.
Will Bitcoin continue to outperform the market outlook? Will there be sector rotation like the previous bull market?
As for whether Bitcoin will continue to outperform in the market outlook, and whether there will be sector rotation in the bull market, I think it is more likely that Bitcoin will dominate. First of all, the situation of Bitcoin is different from that of Ethereum spot ETF, which has recently attracted attention due to the SEC's price manipulation and securities risk investigation of its Proof of Stake (PoS) mechanism. The SEC’s attitude shows that tokens with strong commodity attributes and macro attributes, such as Bitcoin, are more likely to pass ETF approval. Due to its obvious securities attributes, Ethereum is more difficult to pass ETF approval.
In addition, the market has a relatively consistent view on the correlation between Ethereum and equity, believing that it is more like equity than a pure crypto asset. This perception reduces expectations for Ethereum to pass ETF approval. Therefore, if Ethereum wants its spot ETF to be approved, it needs to explain that the PoS mechanism has almost no security properties, which is more difficult.
At the same time, the Bitcoin spot ETF has been approved, and Ethereum is facing problems caused by PoS and increasing competitive pressure. The development of other public chains such as Solana and Polygon, especially the increase in the number of developers, may further challenge Ethereum's market position. If the Ethereum ETF is not approved, users and capital may turn to these emerging chains.
To sum up, due to its unique market position and acceptance, coupled with the liquidity support inside and outside the crypto market under the current high interest rate environment, Bitcoin has a high probability of continuing to show excellent market value and price performance in the future, further enhancing its market share. Compare. At the same time, it is difficult for Ethereum and other Altcoin to obtain liquidity, especially in a high interest rate environment, and the return of liquidity will be slow and orderly. Therefore, there may be a cycle in which Bitcoin dominates and Altcoin are relatively weak.
