The iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin (FBTC) funds have started the year well. The two have surged to their record highs because of the performance of Bitcoin, which crossed the important resistance point at $70,000 on Friday.
They have also added billions of dollars of assets in about two months. IBIT has over $13.2 billion in assets while FBTC has added over $6.2 billion. The other spot Bitcoin ETFs by the likes of Franklin Templeton, Bitwise, and Ark Invest have also done well. Therefore, the question is whether it still makes sense to invest in these ETFs as they sit at their all-time high.
Bitcoin supply issues
The price of all commodities is usually determined by demand and supply. This explains why OPEC+ members meet every month to determine whether to boost or cut supplies. As a result, the price of crude oil has remained above $80 after OPEC decided to trim supplies.
The same analogy can be applied on Bitcoin, where demand is rising at a time when supply has remained under pressure. As shown below, data by CoinGlass shows that the total number of Bitcoins available in exchanges has crashed to the lowest level since December last year.
This situation will worsen in April when Bitcoin goes through a halving period, which reduces the number of coins mined every day. The estimate is that the number of coins produced every day will drop to about 450 from the current 900. The mining difficulty is also expected to increase sharply in the coming months.
Therefore, a combination of weak supply growth and higher demand from institutional investors means that the price may continue rising. In an X (Tweet), Bill Ackman, one of the most respected hedge fund managers, said that he was considering adding Bitcoin to his portfolio.
Most analysts believe that more institutional investors will allocate cash to Bitcoin ETFs because of past performance. The coin has outperformed the other traditional assets for a long time. For example, it is up by over 60% this year while the Nasdaq 100 index is up by less than 10%.
More catalysts for IBIT and FBTC
There are other additional catalysts for the prices of IBIT and FBTC ETFs. The other big one is that the Federal Reserve is considering cutting interest rates in the coming months. This view was confirmed by Jerome Powell, the head of the Fed last week.
Inflation is falling, albeit slowly while the American economy is weakening. NFP data published last week showed that the unemployment rate rose to 3.9% in February. Consume confidence has dropped while the US has released weak durable goods order numbers. The Conference Board said:
"February's write-in responses revealed that while overall inflation remained the main preoccupation of consumers, they are now a bit less concerned about food and gas prices, which have eased in recent months. But they are more concerned about the labor market situation and the US political environment."
Therefore, most analysts expect at least three rate cuts starting in June this year. Such cuts will have a positive impact on Bitcoin and its ETFs. This explains why the US dollar index (DXY) has retreated sharply recently.
Therefore, these factors mean that the iShares Bitcoin Trust and Fidelity Wise Origin ETF will likely continue rising in the coming months. I believe that Bitcoin will soar to over $90,000 before the halving event happens in April.
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