On March 30, David Duong, the Head of Institutional Research at Coinbase, shared a research note on LinkedIn, analyzing the current state and future outlook of the cryptocurrency markets as of this date.

Despite potential disruptions from US holidays and the typical end-of-month and quarter corporate rebalancing, Duong notes that the crypto markets have remained resilient. He points out that the upcoming tax season could prompt some investors to realize profits, which might influence market volatility in the short term. Additionally, Duong suggests that the recent market fluctuations could be partly attributed to traders engaging in a strategy that involves shorting MicroStrategy (NASDAQ: MSTR) shares while going long on Bitcoin.

Looking forward, Coinbase Research believes that several previously identified market headwinds have now passed, setting a positive stage for crypto performance in the second quarter of 2024. However, they anticipate that the most significant positive market factors may only become evident from the second half of April onwards. A key event on the horizon is the impending Bitcoin Halving expected around April 20, which Coinbase Research has analyzed extensively for its potential impact on the supply side of the market.

On the demand side, Duong highlights the critical 90-day review period used by wirehouses to conduct due diligence on new financial products, such as spot Bitcoin ETFs. He says this period, ending as early as April 10, involves a comprehensive assessment to ensure new offerings meet investment minimums, liquidity thresholds, and do not pose operational challenges to existing infrastructures. He believes this diligence process by major broker-dealers like Morgan Stanley, Bank of America, UBS, and Goldman Sachs is crucial for wealth advisors considering asset allocations for clients.

Moreover, Duong points out that in addition to these large financial institutions, other significant wealth management platforms operate in the US, each with its own review periods. He suggests that the conclusion of these evaluation periods could potentially unlock substantial capital for US-based spot Bitcoin ETFs in the medium term.

Coinbase Research also notes the continued high institutional interest in the crypto space, as evidenced by the record-high level of leveraged short positions in CME Bitcoin futures reported by the CFTC on March 19. With total open interest in these futures at $10.5 billion, he points out, many institutions unable to access crypto spot markets directly may be using this spread to gain long Bitcoin exposure. Despite the capital requirements for such trades, the basis between Bitcoin spot and CME futures remained within profitable margins in March, according to Duong’s analysis.

Featured Image via Coinbase