Bitcoin Value Takes a Hit Following Exchange-Traded Fund Approval: Is Market Turning Bearish?
Summary:
Bitcoin's value fell by 6.8% over Jan. 11-12, following the approval of a Bitcoin exchange-traded fund. The decline might be due to investors turning pessimistic after several failed attempts to pass the $47,000 mark. Bitcoin miners, facing a potential 50% reduction in mining rewards, also moved $1 billion in BTC to exchanges. Despite the dip, data suggests that interest in leveraged positions remains strong. The market sentiment is being closely watched through the put-to-call ratio, highlighting a lower demand for put options. Some of the volatility is attributed to a lack of understanding of how spot ETF works, stimulating panic sales and contributing to the recent price correction.
The value of Bitcoin (BTC) declined by 6.8% over Jan. 11 to Jan. 12, reinforcing the bearish view of a sell-off event following the sanctioning of a BTC exchange-traded fund. This development, which had been eagerly awaited, comes after a 75% surge in the preceding 90 days to the commencement of trading on Jan. 11, which somewhat elucidates the subsequent slump to $43,180. Traders are now probing if investors are growing pessimistic after repeated unsuccessful attempts to rise beyond $47,000 in the past week.
There is validity in this apprehension as market players attempting to preemptively purchase ahead of the ETF's launch could face potential losses. In addition, Bitcoin miners potentially feel the need to unload their assets due to the impending halving - less than 100 days away. Despite the profitability of a Bitcoin operation, a 50% reduction in the mining reward could significantly dent margins. According to a Bitcoin News report, miners shifted $1 billion value of BTC to exchanges, marking a six-year high in outflows.
However, CryptoQuant Data suggests that there were several instances of peak transfers from miners correlating with price lows in June 2022, November 2022, March 2023, and August 2023. Although this could embolden bulls, it could also simply be a coincidence. There's no provable correlation between net flows from Bitcoin miners and short-term BTC prices.
For a clearer picture of shifting market sentiment, it's worth looking at Bitcoin derivatives. As of Jan. 5, the cumulative futures open interest rose 14% from 392,130 BTC to 446,500 BTC implying that the interest in leveraged positions still stands strong, unaffected by liquidations. It’s noteworthy that CME leads in this sector, wielding a 30% market share with 135,480 BTC contracts.
In the context of price action influence by retail traders using leverage, one must consider perpetual contracts, which incorporate a rate typically re-evaluated every eight hours. When the funding rate is positive, it signifies increased leverage demand for long (buy) positions. The BTC futures funding rate has floated around 0.2% per week from the beginning of January, indicating balanced leverage demand between longs and shorts (sell).
Moreover, the market sentiment can be inferred by comparing the activity of call (buy) options or put (sell) options. A 0.70 put-to-call ratio demonstrates bullish sentiment, while a 1.40 indicator favors put options, suggesting bearish sentiment. Bitcoin options volume's put-to-call ratio has oscillated between 0.35 and 0.65 in the last 7 days, highlighting a comparatively lower demand for put (sell) options.
Bitcoin's dip on Jan. 12 may be partially attributed to a lack of understanding of the workings of a spot ETF, including creation, redemption, and price formation. Traders' wariness has been further fuelled by numerous false alarms regarding ETF approval and some brokers barring clients from investing in this sector. Uncertainty regarding how Bitcoin spot ETFs will react during weekends and outside regular market hours also raises concerns. This lack of information and understanding is likely triggering panic sales contributing to the recent price correction.
Note: Investing and trading in cryptocurrency carry high risks and should be done after careful research and consideration of individual risk profiles.
Published At
1/13/2024 1:15:00 AM
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