Key takeaways:
Bitcoin soared to a record high of $126,200, supported by unprecedented $5.67 billion in ETP inflows.
Fiscal and geopolitical uncertainties have reignited the “debasement trade” narrative.
Institutional inflows are on the rise, while retail participation continues to wane.
Bitcoin (BTC) surged to a new record of $126,200 on Monday, following one of the most robust weeks for digital assets as global crypto exchange-traded products (ETPs) recorded net inflows of $5.67 billion, marking the largest weekly total ever. The increase signaled a resurgence of investor confidence, driven by renewed trust in the “debasement trade” amid rising fiscal and geopolitical risks.
According to Bitwise’s weekly crypto market compass report, the current crypto rally underscores how diminishing fiat confidence and growing macroeconomic uncertainty are creating structural demand for store-of-value assets, including Bitcoin and gold.
Director and Head of Research André Dragosch, along with Senior Research Associate Max Shannon and Research Analyst Ayush Tripathi, pointed out that the US Dollar Index (DXY) has dropped 10% year-to-date, while gold has surged 50%, outpacing Bitcoin’s 27% increase during the same timeframe. Nevertheless, many investors are now perceiving BTC as a digital hedge with more asymmetric potential against currency debasement.
Bitwise noted that spot Bitcoin exchange-traded funds (ETFs) led the inflows with $3.49 billion, followed by Ethereum’s $1.49 billion and $685 million allocated to alternative altcoin products. US spot ETFs dominated the inflow activity, with BlackRock’s iShares Bitcoin Trust (IBIT) and Bitwise’s BITB capturing the majority of new investments.
Additionally, on-chain data highlighted in the report indicated that over 49,000 BTC were withdrawn from exchanges by whale entities, while positive spot buying coupled with moderate leverage suggests a sustainable progression rather than one driven by euphoria.
With Q4 traditionally bullish and liquidity becoming favorable, Dragosch and the Bitwise team concluded,
“Investors positioned on either side of the store-of-value debate may ultimately converge towards the same outcome, renewed capital inflows into digital assets.”
Related: Bitcoin trader calls $124K ‘pivotal’ as BTC retraces from new all-time high
Fiscal fragility fuels long-term Bitcoin upside
Bitcoin advocate Paul Tudor Jones highlighted an increasing perspective that the US fiscal situation is a crucial macro driver for risk assets. With the federal deficit growing and annual interest expenses projected to exceed $1 trillion, markets are increasingly anticipating prolonged monetary easing, which historically benefits BTC.
Cointelegraph reported that as international investors withdraw from US Treasurys and the dollar weakens, there could be an accelerated shift of capital towards “hard assets” like Bitcoin. Tudor compared the current climate to the late-1990s bull market, indicating that although valuations might seem high, the absence of euphoria and ongoing institutional inflows imply that the rally has more potential.
In essence, fiscal instability, expectations for dovish policy, and decreasing real yields are converging to create a favorable environment for Bitcoin’s growth. However, not all on-chain indicators support this narrative.
Bitcoin researcher Axel Adler Jr. pointed out that small transaction activity, typically associated with retail traders, has been consistently declining since Spring 2024, even as Bitcoin’s price has reached new heights.
This divergence between increasing prices and decreasing retail activity suggests that the current upswing may be primarily driven by institutions, reflecting retail fatigue beneath the surface of Bitcoin’s bullish trend.
Related: US Bitcoin ETFs post 2nd-highest inflows since launch on crypto rally
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
