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Last week, I put the massive buying pressure coming on Bitcoin into context, but there is another – perhaps larger – source of potential demand entering the scene.
We already know that Bitcoin ETFs, MicroStrategy issuing more shares to buy more Bitcoin, continued buying of Tether, and the halving will all be major sources of demand this cycle. For example, in the first two weeks of trading alone, the “Newborn 9” collected 125,000 Bitcoin. This has so far been offset by GBTC outflows, but it is unlikely that all GBTC holders will be captive sellers who will exit as quickly as possible. This flow should begin to decline in the coming weeks.
A somewhat unexpected development is emerging in China, of all places. Readers of my content here and on bitcoinandmarkets.com will be no strangers to what has been happening in China over the past two years. They are living in a transitional phase that represents the end of the economic model. The China we knew was built on debt, producing goods for indebted foreign customers. It depends heavily on globalization and the highly flexible monetary environment. That era is coming to an end, and the collapse of the Chinese real estate market, and now the stock market, are clear signs of the end of this model.
on January On February 24, China Asset Management Corporation (China AMC), a giant fund manager and ETF provider in China, suspended trading on ETFs in the Nasdaq 100 and S&P 500 indexes to stem the flow of funds from other funds to these US-linked funds. On Tuesday, other US-linked ETFs in Chinese markets opened their limits, taking a 21% premium to net asset value. The flight to safety is also affecting Japanese ETFs domiciled in China. Tuesday saw China's Nomura Nikkei 225 ETF rise more than 6% to a premium of 22%.
Chinese investors are in a state of complete panic, and the authorities are closing the door on them. It is only a matter of time until more Chinese investors start exploiting Bitcoin as a store of value and portability. Many Chinese are already familiar with Bitcoin. China used to be the dominant source of demand for Bitcoin until the Chinese Communist Party banned it in 2021.
While Bitcoin is still officially banned in mainland China, investors can still use trading platforms like Binance and OKX. They can also buy OTC, peer-to-peer, or via offshore bank accounts. Last year, Hong Kong publicly opened its doors to Bitcoin. They were following in the footsteps of US regulators who gave Bitcoin its official blessing in Hong Kong. It is unlikely that Hong Kong authorities would make such public pressure to legalize bitcoin and then return next year to ban it.
This morning, a Reuters article quoted a senior executive at a Hong Kong Bitcoin exchange confirming this capital flight story. “Investment in the mainland [is] Risky, uncertain and disappointing, so people look to allocate assets offshore. […] Almost every day, we see mainland investors coming to this market.
“If you are a Chinese brokerage, facing a stock market slowdown, weak demand for IPOs, and a downturn in other businesses, you need a growth story to tell shareholders and the board,” the source added.
We've been talking about Bitcoin providing a parallel universe of green shoots, and now it's being recognized everywhere.
Flows from China will be a big source of demand this cycle, and the approval of US-based Bitcoin ETFs will create the perfect synergy by allowing sophisticated foreign investors to buy Bitcoin and US-based assets at the same time.
We can't forget the struggling European markets either. Europe is likely already suffering from recession. By December, factory activity in the European Union had contracted for 18 months in a row. Germany barely managed to avoid a technical recession even though 2023 GDP was negative at -0.2%. Bitcoin's relative appeal is very high in the world of capital flight and negative growth. Many Bitcoin users worry that a recession will lead to a stock market crash, which could force a Bitcoin sell-off as happened in March 2020, but it could be the opposite this time. As investors realize that the old system is stagnant and decaying, Bitcoin's unique convergence of characteristics as a revolutionary technology, stable supply asset, and economic growth potential is where capital is fleeing.
Bitcoin price update
Bitcoin price performance has been disappointing since the launch of the ETF. However, in the context of FTX's $1 billion sale of GBTC and other large entities selling GBTC to roll into lower capital fees for new ETFs, the price has held up very well.
The RSI is one of the most widely used indicators and, therefore, has a Schilling point effect. People and robots are watching the daily RSI reach the oversold zone. Therefore, it is likely that we will not see any significant rise in price until RSI 30 is broken. This can be achieved through further selling for support, as we are very close to the 30 level already. The most likely possibility is that we could form a hidden bullish divergence, where the price makes slightly higher lows, but the RSI makes lower lows. I don't expect any significant decline either with the demand confluence described above: we are at a temporary standstill.
Staying on the daily chart below but zooming in, we see that the 100 DMA is currently offering support. I am also keeping an eye on the $37,877 level; Important price from back in November. Any decline that pushes the RSI into the oversold zone may not close below that level.
The 100-day line usually does not provide much support for Bitcoin, with the 50- and 200-day moving averages being the most influential. However, below I show the month of September 2020, just before the wild bull rally that ends that year. The 100 Days was the star at the time. It is possible to hold for 100 days and then rise with a pause in GBTC selling. Another interesting observation from that period in 2020: the RSI stalled in the oversold territory, surprising many when it shot to the moon. This is not my primary case, but it takes precedence.
Bottom line, we are seeing massive new sources of demand for Bitcoin from ETFs and now capital flight from China. The dynamics of the ETF launch were complex but the price was relatively stable all things considered. It is only a matter of time until demand becomes evident in the price.
