Bitcoin Struggles Amid Economic Warnings and Low Investor Confidence
Summary:
Bitcoin's price saw a momentary 5.5% increase before facing upward resistance amid lackluster trading volumes, warnings of an economic downturn from the U.S. Federal Reserve, and dwindling expectations of a spot Bitcoin ETF's approval. Market metrics show diminished future activity, and with increased regulatory scrutiny, major U.S trading firms are distancing themselves from the cryptocurrency market. Despite a favorable court ruling, Grayscale's GBTC Trust continues to trade at a wide discount to its Bitcoin holdings, signaling diminished investor confidence. With this unstable situation, Bitcoin breaching the $28,500 barrier seems increasingly unlikely in the near term.
Bitcoin (BTC) experienced a 5.5% intraday spike reaching $28,600 on October 2. However, the excitement generated by the launch of Ether futures exchange-traded funds (ETFs) did not translate to substantial trading volumes, causing a slow-down in momentum for the market leader. Many investors found hope in the recent surge up to the high-point of existing price trends, yet warnings from the U.S. Federal Reserve about looming economic troubles dampened spirits.
On October 3, Bitcoin revealed some resilience by holding steady at $27,200, then later jumped past $27,500 on October 5. But critical trading indicators gave a disappointing outlook, casting doubts on spot market volumes, derivatives, and the likelihood of a Bitcoin spot ETF being approved.
Price pressures on Bitcoin are intensified by macroeconomic factors. For instance, Michael Barr, U.S. Federal Reserve Vice Chair for Supervision, suggested in New York on October 2 an anticipated economic decline triggered by rising interest rates, slowing economic activity, and an unfulfilled potential of the current monetary policy. According to CME's FedWatch tool, speculations are evenly split regarding another rate hike by the Federal Reserve in 2023.
The U.S. 10-year Treasury bond saw an inflation-adjusted yield of 2.47% on October 3. This 15-year high explains why the U.S. Dollar Strength Index (DXY) is at a 10-month peak. Reuters reported the U.S. as a key investment zone due to its resilient economy and higher growth potential in contrast to Europe and China.
Moreover, Bitcoin trading metrics show a drop in activity for leverage longs. Bitcoin's monthly futures generally modestly outvalue spot markets as sellers demand more to delay settling. This creates a typical 5 to 10% annual premium on BTC futures contracts known as contango. Lately, the BTC futures premium traded below the 5% norm, signalling lesser demand for leveraged long positions.
Furthermore, institutional investor activities on regular exchanges have fallen to levels seen in late 2020. This decrease can be traced back to major U.S. trading firms such as Jane Street Group and Jump Trading pulling out from the cryptocurrency market ahead of May 2023 owing to increased regulatory oversight.
Expectations for a spot Bitcoin ETF have also plunged despite its role in supporting Bitcoin's 68% gains in 2023. The recent launch of Ether futures-based ETFs observed an uninspiring demand. Despite the recent court ruling favoring Grayscale's GBTC Trust converting to a Bitcoin spot ETF, investors' lack of trust prevailed as it traded at a 19% discount compared to its Bitcoin assets. Investors could redeem their shares at par value post-conversion.
To conclude, Bitcoin failed to break past the $28,500 resistance, and with the looming economic crisis predicated by Federal Reserve officials, the chances of surpassing this resistance in the near future appear bleak.
Note: The opinion expressed herein is strictly for informational purposes and should not be construed as investment or legal advice. The author's view is personal and does not necessarily represent or reflect Cointelegraph's stance.
Published At
10/5/2023 6:08:09 PM
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