ARK Invest Storm-Buys Bitcoin Despite 22% Plunge... The Real Danger Zone is 'Here'

▲ Cathie Wood, Bitcoin (BTC), Gold/ChatGPT generated image

Bitcoin (BTC) fell 22% in the first quarter, but long-term holders significantly increased their holdings. ARK Invest, led by Cathie Wood, stated in its latest Bitcoin quarterly report that while the price trend is bearish, the internal market structure is closer to terminal stress than collapse.

According to Benzinga on May 7 (local time), ARK Invest assessed that Bitcoin has not yet reached a deep capitulation zone indicating a definitive global bottom. However, holdings by conviction buyers increased by 69% during the first-quarter downturn. These holdings grew from approximately 2.13 million BTC to 3.6 million BTC. ARK Invest explained that buying accelerated near the February lows, indicating that strong-handed investors viewed the correction not as an exit signal but as a buying opportunity.

US spot Bitcoin ETF balances also remained stable. According to the report, US spot Bitcoin ETF balances stayed between approximately 1.26 million BTC and 1.31 million BTC throughout the first quarter, closing around 1.29 million BTC at the end of March. The fact that ETF holdings did not significantly decline despite Bitcoin's 22% drop was presented as the market's first positive factor.

The negative factor is the condition for confirming a bottom. ARK Invest believed there was insufficient evidence that Bitcoin had entered a true bottom zone yet. The key lower bound was presented as being between the realized price and the investor price. In the report, the realized price was estimated at approximately $54,177, and the investor price at approximately $49,759. ARK Invest is watching the $54,000 to $50,000 range as a deeper capitulation zone.

The derivatives market also cooled significantly. Perpetual futures funding rates decreased from 7.1% at the beginning of Q1 to 1.8% at the end of the quarter. This indicates that a significant portion of leveraged long positions has been unwound. The three-month futures basis also narrowed, showing weakened speculative demand. However, ARK Invest noted that while futures basis often shifts to backwardation at a true cyclical bottom, this phenomenon has not yet occurred.

The macroeconomic environment was presented as the second positive factor. ARK Invest mentioned that US non-farm employment was revised down by 861,000, which is the largest negative revision since the global financial crisis. It explained that a greater slowdown in the labor market could increase the likelihood of the US Federal Reserve cutting interest rates. ARK Invest also reported that Truflation's real-time core inflation decreased to 1.11% year-over-year, its lowest level since before the pandemic. ARK Invest concluded that while Bitcoin is technically in a bearish structure, its fundamentals are not broken.

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