Is the Bitcoin Rally Over? 13F in May Might Reveal Whether Institutional Adoption Has Accelerated

Key Takeaways:

• Bitcoin Spot ETFs have a high positive correlation with Bitcoin’s price.

• The market is waiting for broader institutional adoption, which may be revealed by 2024’s Q1 13F reports.

Bitcoin’s Price Loses Steam

Bitcoin dominance chart. Source: CoinGlass

There’s no denying that Bitcoin has been in the driver’s seat of the broader market rally since late September 2023, as evidenced by ever-growing Bitcoin dominance. The Bitcoin dominance ratio was steady at approximately 40% in 2022, but began to climb in 2023 to a level of 53% (as of this writing on Apr 30, 2024). 

Bitcoin’s rally is widely attributed to both the anticipation in late 2023 of Bitcoin Spot ETF approvals and the stellar performance of ETF flows in 2024. However, as Bitcoin Spot ETFs have seen net outflows since mid-March, the Bitcoin rally has stalled, along with the overall cryptocurrency market. 

Bitcoin Price’s Correlation With ETF Flows Suggests Institutional Adoption Is Key for Future Price Movement

Total BTC Spot ETF Net Inflow. Source: CoinGlass

The above chart presents the net daily flows of Bitcoin Spot ETFs in the U.S. since January 2024. Bitcoin stabilized at a level of $40K right after SEC approval, as ETF flows had been disappointing. Yet, as net inflows accelerated in February, the largest cryptocurrency surged, reaching a new ATH above $73K in March.

Beginning in mid-March, Bitcoin adjusted and fell back to a level of $60K as net flows stalled, and even flipped into the red at times. 

Therefore, it’s clear that Bitcoin Spot ETFs have a high correlation with BTC’s price, suggesting that institutional adoption has been the key driver of Bitcoin price instead of macroeconomic data. Thus, further institutional adoption is the key to how high Bitcoin prices can go.

Is the Bull Market Over?

BTCUSDT Perpetual contracts. Source: Bybit 

From a technical perspective, Bitcoin's price has been consolidating above $60K. Neither the Fibonacci retracement model nor Bollinger Bands® suggest an imminent large-magnitude drawdown. In contrast, if Bitcoin can remain above $60K, there’s room for further breakout above $70K with an unexpected impetus.

In our view, the bull market is not over, since Bitcoin's price trend hasn’t yet flagged an imminent pulldown (as suggested above). Potential institutional adoption, a relieving macro environment and the delayed impact of Bitcoin halving might collectively contribute to Bitcoin’s breakout. 

The Market Is Awaiting Deeper Institutional Adoption

In our view, the market is awaiting Bitcoin accumulation from traditional financial institutions, in particular hedge funds. 

13F refers to a quarterly report filed by institutional investment managers in the U.S. with the Securities and Exchange Commission (SEC). The 13F report provides information about the investment holdings of institutional investment managers with assets under management (AUM) above a certain threshold. Generally, managers with AUM of $100 million or more are required to file a 13F report.

The report discloses the manager's holdings of publicly traded securities, including stocks, options, convertible securities and certain types of bonds. It also includes information such as the name of the security, the number of shares held and the market value of the holdings. Furthermore, it indicates any changes in holdings from the previous quarter.

Timing Is Everything

It's important to note that the 13F report has a time lag because it’s filed quarterly, so the information it contains may not be up-to-date. Usually, we see institutions file their 13F right before the deadline (45 days after the quarter ends). As such, we expect to see disclosure in mid-May. The 13F could reveal whether traditional hedge funds have started to own Bitcoin since the approval of Bitcoin Spot ETFs in mid-May. 

That said, a lot of institutions don’t allow such a timely investment into new investment products, and we don’t foresee an omnipresent adoption by traditional institutions.

In addition, the upcoming Q2 earnings report could reveal whether corporate America has shown interest in Bitcoin, the largest and oldest cryptocurrency. So far, MicroStrategy and Tesla are the only prominent players that own Bitcoin as cash on their balance sheets. Due to the more favorable accounting standard update by the FASB, there are no differences between spot Bitcoin and other listed investment products. That said, corporate America might choose to own Bitcoin Spot ETFs directly, rather than opting for custody of their own spot Bitcoin in cold wallets.

Less Restrictive Monetary Policy Might Send Bitcoin Higher

Bitcoin has held well against the backdrop of the hawkish Federal Reserve, while ARK ETFs and many altcoins are still well below their all-time highs. Nonetheless, Bitcoin is still a risky asset; any early rate cuts or dovish remarks from Fed officials could send Bitcoin higher. 

To clarify, during the past bear market macroeconomic conditions had the upper hand in determining Bitcoin’s price. However, the recent rally has nothing to do with macroeconomic changes, as interest rates have been consistently high. Therefore, monetary environment is currently a secondary factor in determining Bitcoin’s price

Bitcoin Halving Cycle May Have Delayed the Rally’s Impact 

Bitcoin has historically outperformed six months after each halving, according to a report on its pre- and post-halving impact. It’s revealing to note that many analysts believe the halving rally might have arrived earlier than expected, and that the post-halving rally might not have arrived this time. In our view, the fourth halving is unlikely to become an exception to the historical upward price trend post-halving, but will likely feature a lower-than-expected positive return.

Final Thoughts

Despite the above positive factors, investors should safeguard against any short-lived pullback as the imminent Bitcoin breakout appears to be losing steam.

Volume by strike price. Source: CoinGlass

In addition, the options market suggests that investors have increased their protective positions by the end of 2024. The strike price for the largest put positions for BTC centers around $56,000, pointing to a potential 10% pullback from the largest currency if market sentiment turns sour.