Bitcoin Tumbles Below $40,000 Amid Anticipation of Large-Scale Options Expiry and Economic Factors
Summary:
This piece discusses the recent trading of Bitcoin (BTC) below the $40,000 support mark for the first time in almost two months. It attributes the negative sentiment around Bitcoin largely to outflows from the Grayscale GBTC following its January 11 conversion to a spot exchange-traded fund (ETF). The article ponders over the influence of economic factors, including the GDP, inflation index, and Federal Reserve policies on Bitcoin's performance. Lastly, the implications, particularly for bulls and bears, of the forthcoming $4.5 billion BTC monthly options expiry on January 26 are also explored.
On January 18, Bitcoin (BTC) was traded below the $40,000 support mark for the first time in almost two months, amid speculation over whether the forthcoming $4.5 billion BTC monthly options expiry on January 26 would prolong the downtrend. Interestingly, the U.S. stock market broke record highs on January 22, suggesting that Bitcoin's lacklustre performance is not likely tied to a broader macroeconomic trend.
The bearish sentiment around Bitcoin is largely attributed to the substantial outflows from the Grayscale GBTC since it was converted into a spot exchange-traded fund (ETF) on January 11. Despite having over $25 billion in assets, GBTC investors were historically unable to request redemptions.
Bitcoin observer @alanbwt referred to the unfolding situation as "the most massive fumbled lead in Bitcoin's history," pointing to GBTC's $27 billion capitalization on January 11 while competitors like Fidelity, BlackRock, and Bitwise were just getting started. Grayscale's decision to maintain a higher than average 1.5% annual administrative fee is claimed to have spurred the sell-off of GBTC shares.
The decline in Bitcoin's value, which started on the same day as the debut of spot ETF trading, occurred concurrently with the U.S. 2-year Treasury yield reaching its lowest point at 4.12%. Investors then shifted their focus from fixed income assets as the yield spiked to the current 4.39%, reversing a trend observed over the past quarter. Analysts attribute this phenomenon to recent economic indications suggesting that the Federal Reserve (Fed) may keep its restrictive stance longer than initially anticipated.
Whether the Fed will begin to lower interest rates in the next several months is contingent upon the GDP figures for Q4 set to be released on January 25 and the Personal Consumption Expenditures (PCE) inflation index due on January 26. If interest rates persist at their current high levels, there will be diminished incentive for investors to invest in commodities such as Bitcoin, which don't offer dividends like stocks do.
Clearly, the fate of Bitcoin investors will be determined by the call options valued at billions of dollars, which were purchased in anticipation of a price surge following the spot ETF approval. The optimism about spot ETF's approval amongst bulls is quite evident as evidenced by the allocation of $4.5 billion for options set to expire on January 26. However, this final volume will likely be significantly lower due to predictions of Bitcoin's price ascending beyond $42,000.
If Bitcoin is trading at $39,900 at the January monthly expiration, only $55 million worth of these call options would be viable - an economic reality that doesn't bode well for bulls. On the flip side, put options valued at $40,000 or more add up to $270 million, thereby offering bears a considerable opportunity to apply short-term pressure on January 26's BTC options.
This piece does not offer investment advice or recommendations. There are inherent risks in any investment or trading decision, and individuals should undertake their own diligent research before proceeding.
Published At
1/24/2024 12:45:00 AM
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