Bitcoin Recovers After Drop, Hits $44k Amid Anticipation of SEC Decision on ETFs
Summary:
Bitcoin saw a significant 9.6% price drop on January 3rd, causing substantial losses for derivative traders, followed by a rebound above $44,000. This fluctuation prompts questions about whether Bitcoin can reach $46,000 before the forthcoming SEC verdict on Bitcoin exchange-traded fund applications. The current US debt trend and expected Federal Reserve interest rate cuts favor risk-on markets, including cryptocurrencies. These financial shifts, combined with US political discord and increasing government debt, could significantly influence Bitcoin and future US economic stability.
Bitcoin's value saw a significant 9.6% drop on January 3rd, bringing the price down to $40,940 and resulting in massive losses for derivative traders. This value drop marked over four months' highest and was evident with the liquidation of $137 million in leveraged long futures. However, the cryptocurrency value soon rallied and is presently trading above $44,000, making people question if Bitcoin could hit $46,000 before the impending SEC verdict on Bitcoin exchange-traded fund (ETF) applications.
The current state of the U.S. government debt and the expectation of the US Federal Reserve making cuts in the interest rate is favoring risk-on markets, including cryptocurrencies. Following the Federal Open Market Committee's recent meeting on January 4, the possibility of 6 quarter-point cuts this year has strengthened. The U.S. government's debt interest now exceeds$1 trillion annually, as reported by Bloomberg.
Increasing debt and political discord in the U.S. have contributed to the downgrading of credit ratings. In August 2023, Fitch decreased the sovereign debt rating from AAA to AA+, with Moody's stating a potential downgrade from the remaining AAA rating. The House Republicans aim to cut down on spending below the levels agreed upon in the June debt ceiling deal, while Senate Democrats are against such cuts, heightening the possibility of a government shutdown.
Investors are taking into consideration the issuing of more U.S. government debt and the consequent loss of dollar purchasing power. This trend would likely impact other fiat currencies as central banks tend to follow the Federal Reserve's footsteps, maintaining high-interest rates to control economic growth. Nevertheless, if the monetary authority insists on achieving a 2% inflation target before reducing interest rates, the U.S. deficit may become unsustainable.
To ascertain if Bitcoin's price surge post-January 3rd crash can surpass the $46,000 resistance, it is crucial to inspect BTC derivatives markets. It's worth noting that the $137 million liquidation that occurred on January 3 didn't devastate the bulls. As seen, Bitcoin futures open interest remains at $18.5 billion, meaning the recent pricing crash affected less than 1% contracts, retaining consistency with the past month's data, thereby downplaying the importance of recent price movements.
Bitcoin monthly futures generally trade at a 5%-10% annualized premium, implying that sellers demand extra funds to delay settlement. Currently, the Bitcoin futures premium stands at 18%, unchanged from last week. However, the extraordinary 31% peak on January 2 symbolized traders' excessive confidence in ETF approval ahead of January 10, which exposed them to liquidations over price volatility.
The dip in Bitcoin's price to below $41,000 doesn't seem to have deterred bullish hopes. The Bitcoin options markets demonstrate this, with a delta 25% skew rising above 7% when expecting a Bitcoin price drop, and falling below negative 7% during periods of thrill. During the Jan 3 price drop, the Bitcoin options skew remained largely unaffected, suggesting that professional traders were not swayed and didn't rush to secure protective put options.
Seasoned traders seem unaffected by the price fluctuations and are adjusted to the fear and excitement that accompany significant events like a potential ETF approval. However, this doesn't guarantee an upward trend above $46,000 before the SEC decision, considering investors had ample time to gather and strategize due to the regulator's publicized deadlines.
Please note that this article doesn't have investment advice or recommendations. Each investment and trading action involves risk, and readers should conduct their research before making a decision.
Published At
1/4/2024 11:44:54 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.