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Good morning everyone,

It's been a volatile week. Bitcoin is undergoing a correction, having lost more than 15% from its recent all-time high in March.

In the bigger picture, a 15% drawdown is not out of the ordinary based on previous bull market pullbacks.

However, with tensions between Israel and Iran and fears of sticky inflation, there is a lot of uncertainty in the market right now.

But if you look closer, this week was a mixed bag of bearish and bullish events. And while I believe that the bearish events are short-term blips, I believe that the bullish events are here to shape bitcoin's future.

In today's newsletter, I'll walk you through the events of this busy week and what they mean for the future.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

Also, this newsletter contains affiliate links. This means that I may receive a commission from them. But for Crypto Down Under, I only choose products I use myself and can recommend wholeheartedly. Don’t forget to do your own research.

Bearish events 📉 

1. Military conflict between Israel and Iran

Last Saturday, Iran launched a series of drone and missile attacks against Israel, sparking fears of a full-scale military conflict between the two countries.

Because it was the weekend and the crypto market was the only market open for trading, bitcoin immediately tanked as people panicked and sold the asset.

Prior to the drone and missile strike, there was a theory that the recent spike in the gold price was due to Iran buying gold to insulate itself from potential US financial sanctions.

If that's true, I think Iran was being rather shortsighted here, and that buying bitcoin would have been the smarter move since it's much easier to store, divide, and move around than gold.

Also, after bitcoin started to tank on the heels of Iran's attack on Israel, people started to question whether bitcoin was a store of value.

Again, I think this question is shortsighted. Bitcoin is a young and volatile asset, but over the last 5 years, it's up over 1000%, while gold is up only 87%. So it's pretty obvious to me which is the superior asset.

Remember what the late Benjamin Graham, "the father of value investing", said about the stock market:

The same is true for bitcoin. In the short term, its price is driven by sentiment, but in the long term, its price is a reflection of sound monetary principles.

The conflict between Israel and Iran also exacerbated existing inflationary fears. (See below.)

Iran is one of the largest producers in the Organization of Petroleum Exporting Countries (OPEC). If its supply is disrupted as a result of the conflict with Israel, causing a spike in oil prices, it could lead to more inflation around the world.

2. Fear of inflation

As I mentioned last week, sentiment around inflation and interest rate cuts has deteriorated significantly in recent weeks in the US, but also in Australia. In the US, the most widely used measure of inflation, the Consumer Price Index (CPI), a representative basket of goods and services, rose to 3.5% in March from 3.2% in February.

Federal Reserve Chairman Jerome Powell said on Tuesday that while the US economy is otherwise strong, inflation has not returned to the central bank's target, making it less likely that interest rates will be cut anytime soon.

That means financial conditions won't ease anytime soon.

Bank of America even thinks there's a real risk that the Fed won't cut rates until March 2025 at the earliest. Some journalists at the Australian Financial Review argue along the same lines, suggesting that rate cuts in Australia won't happen until early 2025.  

Bullish events 📈 

1. Hong Kong greenlights bitcoin and ether ETFs

On Monday, Hong Kong approved its first exchange-traded funds (ETFs) tracking the digital assets bitcoin and ether, making the city Asia's first to offer the popular products after the US launched the first spot bitcoin ETFs in January. The ETFs have not yet begun trading.

The approval differs significantly from that in the US.

First, Hong Kong approved an ether ETF, which is currently under review in the US and may even be rejected.

Second, Hong Kong allowed the in-kind creation and redemption of the ETFs, which basically means that you can buy the ETFs with your bitcoin and ether and redeem the ETFs for bitcoin and ether. In the US, creation and redemption are only in USD, which means you have to sell and buy your crypto into and out of USD.

Long story short, Hong Kong's approach is more friendly to digital assets, which underscores the city's ambition to become a major regulated digital asset hub in Asia.

While I don't expect these ETFs to attract large capital inflows, they do create a new avenue of demand for bitcoin and ether.

The next avenue of demand that I'm waiting for is the approval of bitcoin ETFs in Australia. As Coindesk recently reported, we could see approval for the first Australian bitcoin ETF before the middle of the year.

2. The halving is here

The fourth bitcoin halving is expected to occur on April 20.

The halving is the most bullish event in crypto because it cuts the new supply of bitcoin in half, creating a supply shock. Currently, 900 bitcoin are mined every day. After the next halving, only 450 bitcoin will be mined every day.

Historically, the halving has been a catalyst for a bull market.

Yes, this time may be slightly different as the macroeconomic conditions are different.

But let's just wait and see how the market digests the supply shock of the halving over the next few months.

As I mentioned in this newsletter, there will be much more demand than new supply. The price will have to rise accordingly.

Have a great weekend, everyone, and talk soon!

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