Bitcoin Gains Momentum As ETF Funding Inflows Rise — Should You Ditch USD For Digital Gold?

Bitcoin’s dominance in the cryptocurrency sector has surged to a three-year high, capturing nearly 55% of the $2.4 trillion market for virtual currencies, according to CoinMarketCap data. 

The success of the newly introduced U.S. spot exchange-traded funds (ETFs), including offerings from BlackRock Inc. and Fidelity Investments, has been remarkable, amassing approximately $56 billion in assets to date.

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Nine spot Bitcoin ETFs collectively attracted over $2 billion in assets in just three days after launch earlier in January. These ETF inflows have played a pivotal role in propelling Bitcoin to mid-March highs, reaching a record of $73,835.57. 

As geopolitical tensions persist and investors seek alternative investment avenues, the popularity of BTC — often called digital gold — as a hedge against economic uncertainties has been gaining traction. 

Despite recent market volatility and short-term price corrections, many traders remain optimistic about Bitcoin’s long-term prospects, driven by growing institutional interest and geopolitical uncertainties. 

"Bitcoin remains a viable doomsday asset in 2024, as its correlation to gold recently increased, and investors continue to diversify away from traditional financial assets," said Edouard Hindi, the chief investment officer at Tyr Capital, "The ETF is currently spearheading this doomsday rally, and we should expect $120,000 to be hit in the coming months as global geopolitics continue to deteriorate and the middle classes continue to find ways to protect their wealth."

USD Remains Strong 

In the midst of global economic uncertainties, the U.S. dollar remains a beacon of strength, as markets expect that the Federal Reserve will maintain current interest rates to combat inflation. The U.S. dollar index, which measures the dollar against a basket of six major currencies, has surged by nearly 5% this year, nearing its peak levels since early November.  

While the Fed announced its plans to slash interest rates in the coming months, recent robust consumer price data indicating stickier-than-expected inflation data has turned market expectations.

“The dollar has room to strengthen. We have the strongest economy right now, in general, the trajectory of yields has been going up,” Eric Merlis, managing director and co-head of global markets at Citizens Bank, said.

Investors expect the interest rates to be slashed by 50 basis points in 2024, compared to a 150 basis point cut anticipated at the start of the year.

The widening yield differentials between the U.S. and other economies have driven the greenback to strengthen. The two-year U.S.-German bond spread has reached its widest point since 2022, driving the reserve currency's appreciation, particularly following signals from the European Central Bank indicating potential rate cuts as soon as June.

Bullish sentiment towards the dollar is reflected in futures markets, with net bets on the dollar reaching $17.74 billion, the highest level since August 2022, according to the Commodity Futures Trading Commission. 

Prevailing market conditions, including geopolitical tensions in the Middle East and the Federal Reserve’s quantitative tightening measures, are expected to bolster the dollar’s position further in the near term.

"The U.S. is its own special case with very loose fiscal policy and now tight monetary policy, which is a recipe for a stronger dollar," Quentin Fitzsimmons, senior portfolio manager at T Rowe Price, said, "The buzzword that is going through markets at the moment is divergence."

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