In this podcast episode, Wublockchain editor-in-chief Colin and independent macro analyst Luxon discussed the Bitcoin price breaking historical highs. Bitcoin reached the historical high of $69,000 on November 10, 2021, again on Tuesday at 23:04 this week, marking a new high after 846 days. Luxon believes that it is normal for the American asset management industry to invest 3% in Bitcoin, therefore, Bitcoin could rise to $100,000 in the second half of the year, and possibly reach $70,000 in the first quarter; he thinks that the Federal Reserve’s interest rate cuts will have to wait until the second half of the year, and the prospects for an Ethereum spot ETF are not very optimistic, therefore it might be a bullish market solely for Bitcoin. The opinions expressed are those of the analyst and do not represent the views of Wublockchain, nor do they provide any financial advice. Listeners are advised to invest cautiously and comply with local laws and regulations.

How do we view the speed at which Bitcoin broke new highs this time?

I’m quite surprised by the rapid rise of Bitcoin breaking new highs this time. This phenomenon actually exceeded all expectations of the derivatives market. We originally expected Bitcoin’s price to be between $52,500 and $55,000, which was basically in line with the market conditions at that time. Considering the current high market interest rates, increased financing costs, and relatively smaller scale of financing, these factors usually limit the price increase. At the same time, although the United States has approved exchange-traded funds (ETFs), the widespread adoption of spot ETFs will take time, and it is expected that their effect on pushing the price will not be particularly significant. However, this time, the price increase of Bitcoin far exceeded expectations, reflecting that we may have underestimated investors’ enthusiasm for Bitcoin spot ETFs. Originally, it was believed that 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 supportive policies from other countries, could Bitcoin’s price reach such levels. But Bitcoin’s performance this time was unexpected, with not only a significant price increase but even a new historical high. This is indeed surprising.

How much money will U.S. institutions allocate to Bitcoin ETFs? What impact will this have on the price of Bitcoin?

Regarding how much money U.S. institutions will allocate to Bitcoin ETFs and its impact on Bitcoin prices, there are several key points to consider. Firstly, Bitcoin has unique advantages compared to other assets. Compared to foreign currencies, Bitcoin is not directly affected by the policies of central banks around the world, although it may be indirectly affected by the policies of the Federal Reserve. This makes Bitcoin an asset that can reflect global macro liquidity changes, especially in terms of liquidity relations. In addition, Bitcoin has a low long-term correlation with many assets, making it an important tool for balancing portfolio risk. Compared to gold and foreign currencies, Bitcoin is not only easy to obtain and exchange, but its volatility is higher than most major asset classes, offering higher potential returns.

Regarding institutional allocation to Bitcoin ETFs, a 1% allocation may be a starting point for some institutions, while for investors and fund managers with a higher risk tolerance, this ratio could increase to 2% or more. Especially for certain special ETFs, the allocation ratio could be as high as 10% or more. Overall, the actual allocation ratio in the market may be higher than 1%, estimated to be around 3%, including allocations from most pension funds and some more aggressive fund products.

In the long run, the trend of Bitcoin prices will be influenced by a variety of factors, including further reductions in interest rates and more money allocated by investors to Bitcoin ETFs. In the short term, strong market buying power may drive Bitcoin prices to surpass the interim target of $70,000. Subsequently, as institutional long-term allocations increase and a large amount of capital flows in, Bitcoin has the potential to break through the $100,000 barrier. This judgment is based on observations of market dynamics and Bitcoin’s role as a liquidity indicator in the global macroeconomy.

Will the Federal Reserve cut interest rates in May?

Based on the current state of the market and the interest rate derivatives market, it is not expected that the Federal Reserve will cut interest rates in May. A more likely scenario for rate cuts would be in the second half of the year, possibly in June or later. The number of rate cuts this year is not expected to exceed three, with each cut being 25 basis points. Federal Reserve officials, including Powell, maintain a prudent stance and prefer to take a cautious approach to monetary policy. Given the current high economic heat, excessive stimulus measures could lead to an overheated economy, a situation the Federal Reserve wants to avoid. Therefore, it is anticipated that the Federal Reserve will maintain a relatively cautious stance on monetary policy in the coming months or even a year. As Powell recently mentioned, the Federal Reserve may consider a rate cut in June and observe the economic response in the following one to two months to decide whether further rate cuts are needed. Thus, it is expected that the process of the Federal Reserve releasing liquidity will be gradual and orderly.

Will Bitcoin continue to outperform in the future market? Will there be sector rotation as seen in previous bull markets?

Regarding whether Bitcoin will continue to outperform in the future market and whether there will be sector rotation as seen in previous bull markets, I believe there is a greater probability that Bitcoin will continue to lead. Firstly, the situation with Bitcoin and Ethereum spot ETFs differs, as the latter has recently come under scrutiny due to the SEC’s investigation into its Proof of Stake (PoS) mechanism for price manipulation and security risks. The SEC’s stance indicates that tokens with commodity attributes and strong macro attributes, such as Bitcoin, are more likely to pass ETF approval. Ethereum, due to its clear securities attributes, faces greater difficulty in passing ETF approval.

Moreover, the market has a consistent view on the association between Ethereum and equity, considering it more like equity than a pure cryptocurrency. This perception reduces the expectation for Ethereum to pass ETF approval. Therefore, if Ethereum wishes for its spot ETF to be approved, it needs to argue that the PoS mechanism hardly bears securities attributes, which is quite challenging.

Meanwhile, Bitcoin spot ETFs have been approved, while Ethereum faces issues related to PoS and increased competitive pressure. The development of other public chains such as Solana and Polygon, especially with the increase in developer numbers, may further challenge Ethereum’s market position. If Ethereum ETFs are not approved, users and capital may shift to these emerging chains.

In summary, due to its unique market position and acceptance, coupled with the current support from liquidity both inside and outside the crypto market in a high-interest rate environment, Bitcoin is likely to continue displaying outstanding market value and price performance in the future, further strengthening its market share. Meanwhile, it would be more difficult for Ethereum and other altcoins to gain liquidity, especially in a high-interest rate environment, where the return of liquidity will be slow and orderly. Thus, there may be a market pattern within a cycle where Bitcoin leads prominently, while altcoins are relatively weaker.

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