US regulatory momentum seen as key driver behind Bitcoin breakout

Bitcoin's (COIN:BTCUSD) move out of its recent trading range appears to have been driven primarily by improving US regulatory sentiment rather than broader concerns about currency debasement, according to Citi analysts.

The bank pointed to the delayed reaction in Bitcoin following the US Treasury's bond buyback announcement, as well as ether outperforming Bitcoin during the rally, as evidence that the traditional "digital gold" argument was not the dominant catalyst.

"We think U.S. regulatory news is a more durable explanation for the move," the analysts said.

Citi watches Bitcoin ETF flows for confirmation

Citi said one of the most important indicators over the coming weeks will be whether improving sentiment translates into renewed demand for Bitcoin exchange-traded funds.

ETF inflows have struggled to regain momentum since the liquidations seen last October. According to Citi, a meaningful recovery in flows during the next month could indicate that investors are beginning to price in a more favourable US regulatory environment, even if uncertainty remains over the passage of comprehensive market-structure legislation.

Citi's base case currently assumes no net ETF flows. Over the longer term, the bank also sees uncertainty around how value will accrue to public blockchain networks if more financial activity shifts towards private blockchains.