Crypto Market Setup Looks Positive for Second Quarter: Coinbase

• The bitcoin halving, expected in mid-April, is the standout supply-side event.

• Wirehouses may be close to approving spot bitcoin ETFs, the report said.

• Institutional interest in the crypto space remains elevated, according to Coinbase.

The crypto market is set up for a positive second quarter with most of the previously identified headwinds in the rear-view mirror, Coinbase (COIN) said in a research report on Friday.

These positive factors may “only manifest themselves more clearly starting in the second half of April,” Coinbase said.

The bitcoin (BTC) reward halving, expected April 16-20, remains the main supply-side event, the report said. The quadrennial halving is when miner rewards are slashed by 50%, thereby reducing the rate of growth in bitcoin supply.

“On the demand side, the 90-day review period that many wirehouses employ when conducting due diligence on new financial offerings – like spot bitcoin exchange-traded funds (ETFs) – could conclude as early as April 10,” analysts David Duong and David Han wrote.

Coinbase notes that wirehouses such as Morgan Stanley (MS), Bank of America (BAC), UBS (UBS) and Goldman Sachs (GS) are “not the only gatekeepers of wealth” and some major U.S. wealth-management platforms operate outside of these large financial institutions.

Three months is the normal observation period for some of these large money managers, such as LPL Financial, and Coinbase said this “could yet unlock significant capital for U.S.-based spot bitcoin ETFs over the medium term.”

Institutional interest in the crypto space remains elevated, the report said, citing the level of leveraged short positions in Chicago Mercantile Exchange (CME) bitcoin futures, which climbed to a record high on March 19.

In another positive sign, the total value locked (TVL) in on-chain derivatives has reached an all time high of $3.4 billion, even as the broader decentralized finance (DeFi) TVL remains about 50% off its previous cycle highs, the report added.

Investors shorting shares of MicroStrategy (MSTR), the software developer that has made a strategic decision to buy BTC, versus long bitcoin may be contributing to some of the recent market volatility, Coinbase said.