Bitcoin fluctuates repeatedly, revealing the four main drivers behind the price.

Bitcoin is currently in an awkward situation, is it a pullback or a sign of exhaustion? How will the future market of Bitcoin develop? This bull run is different from the previous ones. This article analyzes the main factors driving the development of the Bitcoin market and forecasts the future market of Bitcoin.

Bitcoin Price Drivers Analysis - Bitcoin ETF

There are various observations in the market regarding the rise in the current bull market. Among the current market changes, the institutional holdings and reductions of Bitcoin ETFs are very important factors. In addition, information and data related to the Federal Reserve’s interest rate policy also have a significant impact on the market changes of Bitcoin. This article will first focus on analyzing these two driving factors.

After the Bitcoin ETF is approved, the institutional demand for the Bitcoin ETF can be roughly divided into three stages. As shown in the chart below (data as of June 15th), in the first stage, institutions significantly increased their holdings of Bitcoin ETF, and their demand was very strong; in the second stage, the institutional demand for increasing holdings of Bitcoin ETF significantly decreased, and the selling volume even exceeded the increase at one point; in the third stage, the institutional demand for Bitcoin ETF showed some recovery compared to the second stage, but it was significantly lower than the first stage.

The reason for the large demand for Bitcoin ETF in the first stage is what? This article believes that this is the release of the long-accumulated demand of institutions, in a sense, it also has the meaning of preemptive positioning. However, after Bitcoin reached around $70,000, the market’s upward momentum sharply decreased, and selling pressure increased, indicating that institutional demand is beginning to slow down. At a deeper level, this means that institutional strategies are shifting from preemptive positioning to strategic build-up (selling high and buying low), and once they consider the price to be too high, they tend to sell. In this transition process, a significant event is that BlackRock’s Bitcoin holdings have surpassed many of the grayscale holdings that have been working in the encryption market for a long time, which is like in a relay race, the original encryption giant officially hands over the discourse power to the traditional Wall Street giant.

What does the resurgence of demand for Bitcoin ETF in the third phase indicate? On May 1st, a large amount of selling of Bitcoin ETF funds led to a sharp drop in Bitcoin prices to $58,307, followed by a renewed trend of holdings in Bitcoin ETF. This may indicate that $58,000 is a relatively appropriate buying price for Bitcoin. This may also be determined by the mining cost of Bitcoin.

Analysis of Bitcoin Price Drivers - Bitcoin Miners

On April 20th, Bitcoin completed its fourth halving, accompanying a halving of block rewards, directly reducing its income by half, which will also significantly increase the mining cost for miners. Data from The Block Pro shows that BTC miner income in May (due to the fourth halving event in April) decreased by 46% compared to the previous month, reaching $963 million. Due to the changes in Bitcoin miner income and expenses, this will also affect their investment decisions, and their selling behavior and mining costs can provide a reference for Bitcoin investment.

On June 13th, CryptoQuant published an article on X platform stating that Bitcoin miners are under pressure and have started to sell off. Recently, there has been a significant increase in mining pool migrations, OTC trading volume, and large listed mining companies reducing their holdings. When the price of Bitcoin fluctuates between $69,000 and $71,000, miners have increased their selling efforts. Data shows that on June 10th, miners sold 1,200 Bitcoins through OTC trades, the highest daily trading volume in two months. In addition, major US Bitcoin companies have also increased their selling efforts.

According to the data from the official website of Coinprint, as of June 15th, the shutdown price of mining rigs such as Ant S19 has been reached. In addition, a considerable number of mining rigs have a shutdown price around $60,000, which is also the main reason why the market can be supported here.

Overall, miners’ selling behavior suggests a relatively appropriate selling price for Bitcoin at $69,000-71,000 or in the short term, while a significant number of miners’ shutdown price for mining machines is in the range of $58,900-63,300, which may be a relatively appropriate buying price in the short term. This is consistent with the trend changes of Bitcoin ETF mentioned above, and they are strongly correlated with each other.

Analysis of Bitcoin Price Driving Factors - Macro Finance

US macroeconomic policies and data have a direct impact on Bitcoin. Once data and meeting statements that are favorable to the Fed’s interest rate cuts appear, the probability of Bitcoin’s rise increases significantly; vice versa.

On June 7th, the US May seasonally adjusted non-farm employment increased by 272,000, the largest increase since March this year, higher than market expectations, and significantly higher than last month’s 175,000. The non-farm data exceeded market expectations, indicating that the US economy is still strong, and the market’s expectation of a rate cut by the Federal Reserve has decreased. As a result, Bitcoin has subsequently experienced a sharp decline, breaking the previous upward trend.

Subsequently, on June 12th, the U.S. Bureau of Labor Statistics reported that the overall CPI in the U.S. remained unchanged in May, with a 0.3% rise in April. Since the release of solid data in February and March, the CPI has been on a downward trend. Analyst Chris Anstey pointed out that this is actually the first month with a good inflation report, and it will take a few more of these good reports for the Federal Reserve to truly cut interest rates in September. Due to the cooling of the U.S. CPI in May, the market has increased expectations of a rate cut by the Federal Reserve in September, and Bitcoin has also rebounded significantly.

Later, on June 14-15, the Federal Reserve issued a statement: The Federal Open Market Committee (FOMC) received information since the April meeting that indicates the pace of improvement in the labor market has slowed, despite signs of accelerating economic activity. Although the unemployment rate has declined, job gains have moderated. Household spending has strengthened. The housing market has continued to improve since the beginning of the year, and the drag from net exports on the economy seems to have eased, but business fixed investment remains weak. Based on market-based measures of inflation compensation, most survey-based measures indicate that longer-term inflation expectations have remained stable in recent months. In response to this report, Bitcoin has stabilized after a decline, and the macroeconomic impact seems to be weakening to some extent.

Overall, the impact of macro policies is long-term; at the same time, at certain key points when important data is released, its impact on Bitcoin is highly significant. With the release of key data ending, Bitcoin returns to a balance, and the market’s long and short game begins again.

Analysis of Bitcoin Price Drivers- Bitcoin Technology Development

I have mentioned in several previous articles that the real reason or essence of supporting the development of Bitcoin is its own technological development. Although the technological development of Bitcoin is slow, each technological development can drive a financial boom. The inscription that exploded in 2023 and the subsequent runes are mainly derived from the Taproot upgrade.

In 2024, Bitcoin will also usher in a series of important upgrades, such as support for smart contracts BitVM on Bitcoin, the launch of Taproot Assets Mainnet, OP_CAT proposals, draft OP_TXHASH proposals, Lightning Timeout Trees, updated Musig 2 proposals, BIP-324 – V2 transport, and more. With a series of upgrades, you can unlock long new use cases over time. We’ve seen a lot long Bitcoin Layer 2 projects emerge to break new ground for Bitcoin’s financial landscape. On June 7, Starknet, Ethereum Layer 2 leader, also announced its entry into Bitcoin, and the key to this depends on whether the OP_CAT proposal can be passed. This paper believes that with more and more long Bitcoin technology upgrades, more and more long application scenarios and use cases will be generated to promote the development of Bitcoin and its ecosystem.

From the current data, the development of the Bitcoin ecosystem is still in its early stages. Previously hyped symbols, inscriptions, and Bitcoin Layer 2 have begun to enter the ecological construction period. Taking the Bitcoin Layer 2 leader Merlin as an example, Defillama data shows that as of June 15th, Merlin’s monthly capital inflow has increased by 162%, making it the fastest-growing among the top ten public chains and Layer 2; currently, its TVL funds have reached 1.196 billion US dollars, ranking eighth, surpassing many established public chains in just a few months.

Short-term Outlook for Bitcoin Prices

From a technical perspective, the new Bitcoin proposal OP_CAT may become the main driving factor and core factor for the next round of Bitcoin pump. Once it is officially merged into the Bitcoin Core code, it will undoubtedly greatly promote the development of the Bitcoin ecosystem and drive the rise of BTC price. From a macro perspective, with the overall upward shift of the interest rate dot plot, the median interest rate for 2024 has been raised from 4.6% to 5.1%, which means there may be only one interest rate cut within the year, and the probability of a rate cut in September has increased. In terms of the mid-term market, Bitcoin may welcome a traditional peak season for gold and silver. In terms of the short-term market, Bitcoin miner behavior and the shutdown price of mining machines provide a reference for buying and selling: the bottom range is between $58,900 and $63,300; the short-term top range is between $69,000 and $71,000.