Contrary to certain Post-ETF approval price prediction by analysts, bitcoin price has witnessed slight corrections. What are the possible causes?
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The recent approval of the first Bitcoin ETF in the United States has not led to the anticipated price rally.
Although the much-anticipated bitcoin ETF approval contributed to a 75% rally during the 90 days leading to the initial trading on Jan. 11, the approval prompted a quick rally to 49,000 followed by a subsequent price correction to $41,480 leading to the liquidation of over $80 million worth of leveraged bitcoin positions
The Bitcoin ETF approval was a long-awaited event, and many investors were already expecting it to happen. This could have led to some of the excitement being priced in ahead of time for a bit of profit taking to happen after the approval.
Are Traders Turning Bearish?
To discover if traders are turning bearish the Bitcoin derivatives market must be effectively analyzed.
Recent data has shown that the aggregate futures open interest has increased by 14% to 446,500 BTC from 392,130 on Jan. 5, meaning investors’ interest in leverage positions has not faded, and neither has it been negatively impacted by liquidations.
Next, one should analyze whether leverage trading by retail traders is influencing the price action. These Perpetual contracts, also include an embedded rate called funding rate that is typically recalculated every eight hours. A positive funding rate indicates increased demand for leverage among long (buy) positions.
Data from coinglass shows that bitcoin futures funding rate has stabilized at a mere 0.2% per week since Jan. 4, indicating balanced demand for leverage between longs and shorts (sell). This shows that the recent price decline was by leverage trading by retail traders. What then could have caused the sell off?
GBTC share redemptions
Grayscale Bitcoin Trust (GBTC), which held a total of $25bn+ worth of Bitcoin that has been locked up for years with no option to be sold, has recently opened the option for redemption of bitcoin.
Investors can now exit their positions, a move which directly impacts the Bitcoin market due to the necessary selling of Bitcoin holdings.
Redeeming just 20% of GBTC share, this could translate to around $5 billion worth of Bitcoin being sold in the market. This figure is substantial enough to create considerable selling pressure on Bitcoin’s price.
Following this premise, one question comes to mind, will the demand from ETF providers match this sudden surge in supply?
There is a great concern that the ETF market may not have enough demand to absorb these potential sales quickly, which could lead to sustained selling pressure on Bitcoin.
It is however worthy of note that this sell-off seems only to be affecting Bitcoin, as altcoins have not been affected by the selling pressure. This divergence suggests that the current market dynamics are primarily driven by the unique situation with GBTC and do not reflect a broader market sell-off in the cryptocurrency domain.
Miners Too May just be selling
Given that bitcoin halving happens in less than a 100 days, Miners might feel pressured to sell some of their holdings because regardless of how profitable a Bitcoin mining operation is, a 50% cut in the block subsidy will significantly affect margins.
According to Bitcoin News, miners’ outflow hit a six-year high as $1 billion worth of BTC was sent to exchanges.