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Bitcoin Consolidates Around $55K Following Release of U.S. Core Inflation Data

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On Thursday (March 11), Bitcoin is consolidating around the $54,800 level, down around 0.85% on the day. In this article, we look at two potential explanations for the BTC price falling from around $57,400 (its intraday high on March 10).

One-Day BTC-USD Chart (Bitstamp) by TradingView

Lower Than Expected U.S. Core Inflation Rate for February 2021

Here is a nice definition of core inflation by The Balance:

The core inflation rate is the price change of goods and services minus food and energy. Food and energy products are too volatile to be included. They change so quickly that they can throw off an accurate reading of underlying inflation trends.

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As The Balance points out, core inflation is also known as “Consumer Price Index for All Urban Consumers Less Food and Energy” (CPI Less Food and Energy).

The exclusion of food and energy “makes the core rate more accurate than the headline inflation rate in measuring underlying inflation trends, and this accuracy is “why central banks prefer using the core inflation rate when setting monetary policy.”

According to a press release yesterday by the U.S. Bureau of Labor Statistics, the CPI for all items less food and energy “rose 0.1 percent in February,” which was less than what many economist were expecting to see. It went on to say that “the index for all items less food and energy rose 1.3 percent over the last 12 months, a smaller increase than the 1.4-percent rise for the 12 months ending January.”

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Holger Zschaepitz, Senior Editor at the Economic and Financial desk of the German daily Die Welt and its Sunday edition Welt am Sonntag, offered a market update earlier today, in which he said that this “tame US inflation report helped to keep Yields & Dollar in check.”

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And in fact, as of 10:00 UTC on March 11, according to data by MarketWatch, both the U.S. treasury yields and the U.S. dollar index (DXY ) are slightly down today.

Source: MarketWatch
Source: MarketWatch

A report by Reuters published yesterday blamed the fall in DXY on “a tame U.S. inflation report and a tepid auction of benchmark 10-year Treasury notes.” The report went on to say:

U.S. Treasury yields slid following the data, as market participants had hoped for a more upbeat outlook on consumer prices.

The dollar index has closely tracked a surge in Treasury yields this year, both because higher yields increase the currency’s appeal and as the bond rout shook investor confidence, spurring demand for safe-haven assets.

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Axel Merk, president and portfolio manager at Merk Hard Currency Fund in Palo Alto, California, told Reuters:

Bonds are getting stronger, which means the dollar relatively speaking, may be less attractive,” said Axel Merk, president and portfolio manager at Merk Hard Currency Fund in Palo Alto California.

Bonds had quite a sell-off and many would have argued that it may have been overdone.

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In short, a lower inflation rate increases the appeal of U.S. treasurys, which makes their prices go up and their yields go down. Lower bond yields increase the attractiveness of risk-on assets such as Bitcoin and stocks. However, currently, Bitcoin’s primary use case is to act as a hedge against higher inflation, and so lower inflation reduces the need to buy Bitcoin, which could have helped to push its price lower.

Oracle Corporation Does Not Mention When Reporting Q3 FY2021 Results

Yesterday, Oracle Corporation (NYSE: ORCL) announced its fiscal 2021 Q3 results, and contrary to rumors that had been floating around in the crypto community (possibly started by Bitcoin advocate Max Keiser) in the past few weeks, the company or its CEO Larry Ellison did not mention any investment in Bitcoin, unlike Tesla and Elon Musk.

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Many people were expecting Ellison to follow his friend Elon Musk’s example and use some of Oracle’s cash to buy Bitcoin for use as a treasury reserve asset. There were two reasons for this. First, the Oracle CEO, who is a friend of the Tesla CEO, owns a large amount of Tesla stock. Second, Ellison has a member of the Board of Directors of Tesla since December 2018. According to a report by CNBC published on 13 February 202, Ellison “disclosed his ownership of 3 million shares in Tesla at the end of 2018 before joining the board.”

The quashing of this rumor could have made those people who had recently bought Bitcoin based on this rumor to sell once it became clear that the rumor was not true.


Featured Image by “SnapLaunch” via Pixabay.com

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The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.

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This ransomware gang moved $6.8 million in Bitcoin amid regulatory overhaul

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Ransomware groups, Darkside and BlackMatter recently moved multi-million dollars worth of Bitcoin upon getting the news of REvil’s servers getting hacked by a global coalition of law enforcement agencies. According to the authorities, 107 BTC, which amounts to $6.8 million were moved earlier today by splitting the amount into several different wallets.

Furthermore, officials revealed that the gangs were already aware of regulators’ oversight and therefore had prepared the mentioned balance to be laundered or cashed out. According to The Record, officials noted that the breakdown of funds into smaller portions is usually used for money laundering operations as the regulators directly transfer the entire amount of confiscated funds instead of splitting them up.

“Basically, since 2AM UTC whoever controlled the wallet started to break the BTC into small chunks… At the time of this writing, the attackers split the funds into 7 wallets of 7-8 BTC and the rest (38BTC) is stored in the following wallet: bc1q9jy4pq5su9slh56gryydwkk0qjnqxvfwzm7xl6”, Omri Segev Moyal, CEO and co-founder of security firm Profero shared this data with The Record.

It is obvious that the Darkside and BlackMatter were next on the regulatory hitlist as Darkside was the ransomware strain developed by REvil associates that were used earlier this year in the infamous Colonial Pipeline incident of May. This attack indirectly led to fuel supply outages across the US East Coast.

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REvil ransomware group’s website went offline

Yesterday, the Reuters’ report about REvil’s servers being hijacked by the regulators went viral and threw other ransomware groups in a fit of panic. A multi-nation operation against cybercrime group, REvil was implemented and took down the group’s “Happy Blog” website, which was formerly used to leak victim data and extort companies.

“The FBI, in conjunction with Cyber Command, the Secret Service and like-minded countries, have truly engaged in significant disruptive actions against these groups,” said Tom Kellermann, an adviser to the U.S. Secret Service on cybercrime investigations and VMWare head of cybersecurity strategy. “REvil was top of the list.”, he added.

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First Bitcoin ETF in Immediate Danger of Hitting Cap on Contracts Held

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The first bitcoin (BTC) futures-backed exchange-traded fund (ETF), ProShares’ BITO, is reportedly already in danger of breaching a limit on the number of futures contracts it is allowed to hold under current Chicago Mercantile Exchange (CME) rules.

BITO already owns nearly 1,900 bitcoin futures contracts expiring in October, according to Bloomberg data. The number is close to CME’s current rule that a single entity cannot own more than 2,000 front-month futures contracts, Bloomberg reported on Thursday, when BITO had only been live for two full days. 

To get around the limit, the ETF has reportedly started buying futures contracts expiring in November in addition to the October contracts it holds, with 1,400 November contracts amassed so far. At the current pace, however, the fund could also soon reach CME’s cap on holdings for next-month contracts of 5,000 contracts, per the report.

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And while the CME has already said it will increase the limits to 4,000 front-month contracts starting in November, this is also likely to be reached soon by BITO, which already has more than USD 1bn under management.

A major issue faced by ProShares’ ETF is that futures contracts tend to trade at a higher premium over spot prices the further away their expiry date is – a phenomenon known as contango in the futures market.

As such, choosing to get around the maximum limits by buying longer-dated contracts will mean the ETF has to get its bitcoin exposure at prices that are increasingly higher than spot. This could result in high costs when contracts are rolled over at expiry that will eventually be paid by the ETFs investors in the form of lower returns.

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According to Bloomberg’s own ETF expert, Eric Balchunas, some of the pressure on the first ETF to be launched could be alleviated by competing ETFs coming to the market over the next few days and weeks. However, the first-mover advantage that BITO has gotten will still be difficult to challenge, he said.

“The unprecedented early volume in BITO makes it like a snowball rolling downhill, as liquidity and assets begets more liquidity and assets,” Balchunas said, adding that it will be “nearly impossible” for other ETFs to steal significant volume from BITO in the short or medium-term.

Commenting on the possibility of the ETF running into the ceiling, some speculated that the extreme popularity of the futures ETF could eventually pressure the US Securities and Exchange Commission (SEC) to allow a “physically” backed spot bitcoin to launch. 

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That scenario was suggested by Zhu Su, CEO of crypto hedge fund Three Arrows Capital, saying that it could lead to the ETF rising to a “hilarious premium,” leading the SEC to “approve a spot ETF because of public outrage.” 

In a tweet, he also shared a comment from Max Boonen, Founder of electronic market maker B2C2, saying that it is “doubtful” that clearing houses will be comfortable with a single entity holding more than 4,000 front-month contracts.

“What happens when BITO surpasses 4k [contracts] as it surely will?”, Boonen asked.

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A similar idea was also suggested by Eric Balchunas, saying in the Bloomberg report that BITO hitting the limits on how many futures contracts it is allowed to hold could pressure the SEC to allow a spot-based bitcoin ETF.

“That certainly would do the trick in slowing down BITO and providing a release valve for futures demand,” the senior ETF analyst said.

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Meanwhile, the second bitcoin ETF to be approved by the SEC, the Valkyrie Bitcoin Strategy ETF with the ticker BTF, is scheduled to go live on the market today, October 22. BTF will also be backed by bitcoin futures contracts traded on the CME rather than by “physical” bitcoins.

BTF should go live on the Nasdaq exchange when the market opens at 09:30 ET (13:30 UTC).

Following the launch of Valkyrie’s fund today, a third bitcoin futures ETF, the VanEck Bitcoin Strategy ETF (XBTF), is set to go live on Monday on the Cboe BZX Exchange, according to a recent SEC filing.

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Second US Bitcoin Futures ETF Launching Today – Here Are the Details

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A new Bitcoin (BTC) futures exchange-traded fund (ETFs) rolls out today.

Valkyrie Investments, an alternative asset management firm, is launching the country’s second Bitcoin futures ETF, according to CEO Leah Wald.

The new product is called the Valkyrie Bitcoin Strategy ETF and will trade on the Nasdaq under the ticker symbol BTF.

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The launch comes on the heels of ProShares’ Bitcoin futures exchange-traded fund, which exploded onto the market on Tuesday with the second-biggest ETF launch of all time.

Like ProShares’ Bitcoin Strategy ETF (BITO), the Valkyrie ETF doesn’t invest directly in BTC but provides price exposure to Bitcoin futures contracts.

Per the ETF’s prospectus,

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“Under normal circumstances, the fund will seek to purchase a number of Bitcoin futures contracts so that the total notional value… of the Bitcoin underlying the futures contracts held by the fund is as close to 100% of the net assets of the fund as possible.”

Bitcoin is trading at $62,793, up nearly 10% on the week but down from its Wednesday all-time high of $67,276, according to CoinGecko.

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