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July 25, 2024

Bitcoin Plunges Over 6% as ETF Euphoria Fades

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Jan 16, 2024

Bitcoin saw a dramatic sell-off over the past 24 hours, plunging more than 6% from its local high of $45,500. The steep decline comes on the heels of the SEC’s approval of the first Bitcoin spot ETFs, leading to accusations that the news had already been “priced in.”

Excitement Turns to Profit Taking

Sentiment in crypto markets had turned extremely bullish last week in anticipation of the SEC rulings on several Bitcoin ETF applications. Bitcoin rallied around 15% leading up to Monday’s announcement, touching $45,500 before quickly reversing lower.

The sell-off accelerated Tuesday, with Bitcoin dipping below $42,000 amid huge liquidations across exchanges. Over $240 million worth of crypto futures positions were liquidated in just 24 hours according to data from Coinglass.

Exchange Liquidations
OKX $60.5 million
Binance $50.3 million
Bybit $32.9 million
FTX $23.2 million
BitMEX $21.6 million

“It was a classic ‘buy the rumor, sell the news’ response after the ETF launch,” said billionaire investor Anthony Scaramucci. He pointed to heavy selling pressure from Grayscale’s Bitcoin Trust (GBTC) as institutions took profits.

Indeed, GBTC saw record outflows of $80 billion the day the SEC approved ProShares’ spot Bitcoin ETF. Investors had piled into the trust amid Bitcoin’s surge, with the fund trading at up to a 40% premium to its underlying BTC holdings.

Bearish Technicals Emerge

From a technical perspective, Bitcoin had reached overbought conditions on larger timeframes. Prior to the ETF announcements, the cryptocurrency tested a key horizontal resistance between $45K to $46K multiple times over the past year.

BTC Chart

Bitcoin faces resistance near $46K on the daily chart (TradingView)

Pulling back from this zone allows more room for additional upside. However, breaking below $40K would likely confirm a deeper correction is underway.

On smaller timeframes, Bitcoin’s 6% decline triggered three black crows, a bearish candlestick pattern signaling further downside ahead.

DiminishingVolumes, Fed Fear

Despite Bitcoin’s ostensible “mainstream moment” with the SEC’s blessing of spot ETFs, trading volumes have noticeably declined across exchanges.

Futures open interest also remains lackluster, suggesting weaker conviction from larger players. In fact, CME Bitcoin futures saw just $7 million in volume across its new ETFs – a far cry from the billions analysts had predicted.

This trend points to skepticism around whether the ETFs can draw substantial new institutional inflows over the long run.

More importantly, investors now shift their attention to the FOMC policy meeting next week. The Fed is poised to announce further rate hikes to tame inflation – dashing hopes of an imminent policy pivot.

Higher rates weaken appetite for riskier assets like Bitcoin and tech stocks. And with the crypto market still closely tracking equities, further declines may arise should stocks retreat on a hawkish Fed outlook.

Bitcoin Miners Feel the Pinch

The abrupt decline put pressure on listed crypto miners who rely heavily on Bitcoin’s price.

Marathon Digital Holdings ($MARA) plunged over 7% to below $15 per share. The company faces growing costs with its mining operations still far from breakeven, meaning lower BTC prices severely impact revenues.

Meanwhile both Riot Blockchain ($RIOT) and Hut 8 Mining ($HUT) dropped 4%. The steep drop in hashprice – or mining profitability – limits these firms’ ability to expand operations.

Company Price Decline Hashprice Drop
Marathon Digital -7.2% -6.6%
Riot Blockchain -4.2% -6.6%
Hut 8 Mining -4.1% -6.6%

Of course miners with lower energy costs can still mint profits at current levels. But market jitters around Bitcoin’s outlook weigh heavily on share prices across the sector.

Macro Environment Still Fragile

Stepping back, it’s important to contextualize Bitcoin’s volatility within the current macro backdrop. Recent Consumer Price Index (CPI) data showed inflation ticking higher despite aggressive Fed tightening over the past year.

Investors hoping for a Fed pivot face dismay as policymakers stick to their hawkish outlook for longer. Natural gas prices also spiked to start the year as the northern hemisphere enters peak winter demand.

Together, stubborn inflation and spiking energy costs create huge uncertainty on both the fiscal and monetary policy front. This fuels volatility across global markets, with risky assets like Bitcoin and tech stocks at the forefront.

Until inflation shows meaningful declines, the Fed’s hiking cycle will continue well into 2024. Only when the central bank eventually pauses rate hikes can some sense of certainty return for investors.

Path Ahead

In the short run, the path of least resistance seems lower for Bitcoin following the “sell the news” price action after the ETF launch. Bears will look to test the psychological $40K zone which paused the last major correction back in September.

Losing $40K definitively on a weekly closing basis risks accelerating stop loss selling down to the next support zone around $37K to $38K.

However, several on-chain indicators remain constructive for Bitcoin over multi-month horizons. Exchange reserves show no meaningful uptick despite heavy selling pressure this week – suggesting limited panic selling from longer-term holders.

Moreover, supply held off exchanges remains near all-time highs, reflecting accumulation by bigger players over the past year. Even after the steep 6% drop, overall investor sentiment remains neutral, with plenty of sidelined cash ready to buy future dips.

Once the Fed finally eases policy and inflation shows real declines later this year, Bitcoin and risk assets broadly have room to rally. And with spot ETFs now traded in US markets, any resumption of Bitcoin’s bull run stands to accelerate institutional inflows more than ever.

AiBot

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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