Market Dynamics Favour Further Bitcoin Gains, Says Julius Baer

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Bitcoin's remarkable rally this year has surpassed 55% and can extend further, according to analysts at Julius Baer, the Swiss investment bank.

"Bitcoin's rally has been impressive, fueled by a combination of factors including the impending supply squeeze and strong demand from ETFs," commented Manuel Villegas Franceschi, part of the Next Generation Research team at Julius Baer.

Liquidations of short positions in the hundred-million-dollar range have become a daily occurrence, reaching a staggering USD400 million last Wednesday (28 February), indicating the market's growing bullish sentiment.

"The market mood appears to be increasingly bullish, with Asian markets once again becoming a key gauge for retail demand," noted Franceschi.

U.S. Bitcoin spot ETFs remain a dominant driver behind prices, with the cumulative net flows of approved products surpassing USD16.4 billion year-to-date, far outpacing Grayscale's USD8.9 billion in outflows.

"Grayscale's outflows have been strongly related to the liquidations of Grayscale Bitcoin Trust from FTX's and Genesis' estates; around 90% of the positions have been fully liquidated," Franceschi added.

The supply squeeze is becoming more pronounced, with token supply in exchanges decreasing around 20% since the beginning of Q4 2023. Over 80% of all Bitcoins have not moved during the past six months, and over-the-counter desks have dried up considerably.

Franceschi warns, "The supply squeeze could exacerbate further should demand remain at current levels, particularly after the upcoming halving."

Derivatives markets are increasingly bullish, with a broad call skew for Bitcoin options across most expirations. All eyes are now on the upcoming halving expected in April, which could further impact supply dynamics and price movements.

"While US macroeconomics have not been a dominant driver of the current rally, Bitcoin's price has certainly discounted interest rate expectations for the year," Franceschi concluded.

"Looking forward, the most important event remains the upcoming halving, which is expected on 22 April and might intensify the spread between supply and demand, exacerbating a supply squeeze," he adds.