Bitcoin finally surpassed its 2021 all-time high levels, briefly touching the $72,850 mark before retreating slightly. The reasons behind this move are quite clear.

Unbridled demand for physically backed ETFs, in a context of shallow market depth. The market mood appears optimistic, with investors keeping an eye out for any signs of exuberance.

The chances of an approval of Ethereum spot ETFs in May could be forming on a more fragile basis than those of these Bitcoin products, from a couple of months ago. In general, Ethereum has appreciated because Bitcoin ETFs have been the driving force of the entire market.

Bitcoin finally surpassed its 2021 all-time high levels, briefly touching the $72,850 mark before retreating slightly. The reasons are quite clear.

Overwhelming demand for physically backed exchange-traded funds (ETFs) amid low market depth. The market mood appears optimistic, with investors keeping an eye out for any signs of exuberance.

Derivatives markets are gaining traction, with a clear tilt toward call options on most expiration dates for options contracts on on-chain platforms.

US spot bitcoin ETFs have emerged as a key measure of institutional demand for bitcoin.

The group of 11 funds has amassed more than $59 billion in assets under management, with total net inflows of approximately $11 billion. The funds' trading capacity has been steadily improving, with clear signs of efficiency in terms of tracking errors, slippage and spreads.

The five-day moving average for flows is at $440 million. The weekly issuance of bitcoins, of approximately 6,300 tokens, is completely negligible when contrasted with the demand for tokens from ETFs in recent weeks, which is around 40,000 tokens.

The basis for an approval of physically backed Ethereum ETFs in the US is weaker. Regulators at the Securities and Exchange Commission (SEC) have not shown the same proactivity on the matter.

Finally, the Howey Test, which is a common precedent used by the SEC, establishes that an investment of money, in a common enterprise, with expectations of profits derived from the efforts of others, could raise further concerns; The reason is specifically regarding the contingency of the ethereum burning mechanism on network activity.

If the burning mechanism does not offset the staking emissions, the blockchain simply enters an inflationary state. The Ethereum network will undergo the Dencun upgrade this week and is expected to improve scalability and mitigate costs in layers-2.

Overall, there are some key themes developing within the Ethereum blockchain, however, the asset has rallied primarily on expectations of possible approval of spot ETFs in the US.

Manuel Villegas, Digital Asset Analyst, Julius Baer

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