As of the day before yesterday, Wednesday, December 3rd, outflows on Bitcoin ETFs have returned.
They had halted at the end of November, and for five consecutive trading sessions, the trend had reversed.
However, a few days ago it turned negative again.
Behind this dynamic, there might be another one directly linked to liquidity.
Outflows from Bitcoin ETFs
During the month of November, there were also relatively strong daily outflows.
In fact, both on November 13 and November 20, daily total outflows exceeded $860 million.
It was not an actual record, given that the highest total daily outflow exceeded $1.1 billion, but nonetheless, these figures were quite comparable to the all-time record.
However, on November 25, there was a clear trend reversal.
It is noteworthy that on that day there was a slight rebound in the price of Bitcoin which took it out of the risk of falling below $80,000.
To be honest, the slight rebound had already started on Friday the 21st, with nearly 240 million dollars in inflows that day, but the following Monday, after the markets reopened, there were new outflows amounting to 150 million.
The following day, Tuesday, a new phase of inflows began, which only concluded the day before yesterday.
The curious thing is that even on Monday, December 1st, despite a sharp drop in the price of Bitcoin to $84,000, there were still overall daily inflows into ETFs, albeit for only 8 million dollars.
However, in the last two trading sessions, with the price of BTC still above $91,000, there have been over $200 million in outflows overall.
The Cause
At this historical moment, there is a dynamic underway that is very likely influencing the financial markets, particularly the American ones.
The USA government shutdown that began on October 1st has temporarily deprived the markets of the liquidity flow from U.S. government accounts.
However, the negative consequences of this issue on Bitcoin began to be seen only a week after the start of the shutdown.
When the shutdown ended on November 12, $150 billion in unspent funds had accumulated in US government accounts. This caused a minor liquidity crisis in the American markets, leading to the price of BTC dropping from $115,000 to $81,000.
In the first week following the end of the shutdown, only 12 billion dollars were released from the US government accounts out of the 150 billion accumulated over the previous six weeks, resulting in almost no impact on the markets. In fact, the lowest price point for Bitcoin during this period was reached on December 21st.
The second week after the end of the shutdown saw a significant outflow of $38 billion from U.S. government accounts, bringing the total outflow to $50 billion since the shutdown ended.
These significantly larger outflows had positive effects on the price of Bitcoin, particularly in the following week.
However, during the third week after the shutdown, which began on November 27, not only were there no net outflows from US accounts, but there were actually new inflows amounting to a substantial 34 billion dollars.
This once again drained liquidity from the markets, so much so that on December 1st the price of BTC fell back to $84,000. Two days later, outflows also returned on ETFs.
The Dollar Index
Although the current level of deposits in US government accounts has not returned to pre-shutdown values, standing at $937 billion compared to $953 billion on November 12, this recent increase has had a negative impact.
However, on the other hand, another dynamic is underway that is instead favoring the rise of the price of Bitcoin.
At this moment, this second dynamic seems to have gained the upper hand over the first, although it is not certain that this situation will remain unchanged for much longer.
This concerns the decline of the Dollar Index, which has dropped in the last ten days from over 100 points to less than 99.
It may seem like a slight decline, but for an index like this, losing two and a half points in ten days is not insignificant at all.
It should be noted that the trend of Bitcoin’s price tends to be inversely correlated with the Dollar Index in the medium term, which means it may have benefited from its decline more than it has been harmed by the liquidity drain by the US government.
The Forecasts
To be honest, the decline of the Dollar Index might also take a momentary pause, but next week the Fed is expected to cut interest rates.
This cut should further decrease the Dollar Index, also because with lower rates, the yields on U.S. government bonds are reduced, which could therefore be sold.
The fact is that foreign investors selling U.S. government bonds receive dollars, which they then sell to obtain their own currency, thereby increasing the selling pressure on dollars and causing the Dollar Index to decline.
It is possible that in the next two weeks this could become the dominant dynamic, especially because the week after the potential Fed cut, the Bank of Japan is expected to increase interest rates, thereby raising the yield on Japanese government bonds.
Since Japan is by far the largest foreign holder of US government bonds, such a dynamic could lead to significant sales of Treasuries over the next two or three weeks, further lowering the Dollar Index.
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