Bitcoin Price Drops Sub $39,000 – 3 Key Reasons
23 January 2024 - 10:00PM
NEWSBTC
The Bitcoin price has plummeted below the $39,000 mark, the lowest
level since December 2. This significant drop can be attributed to
three main factors that have collectively contributed to the
current market sentiment and price action. #1 Selling Pressure From
Grayscale’s GBTC Outflows The market has been heavily influenced by
the continuous outflows from the Grayscale Bitcoin Trust (GBTC).
Bloomberg analyst James Seyffart commented on the severity of the
situation, stating, “Woof. BAD day for Bitcoin ETFs overall in the
Cointucky Derby. GBTC saw over $640 million flow out today.
Outflows aren’t slowing — they’re picking up. This is the largest
outflow yet for GBTC. Total out so far is $3.45 Billion.”
Nevertheless, the volume on the Bitcoin ETFs remained very strong,
surpassing $2 billion, with GBTC accounting for over half of this
volume. The total volume for the first seven trading days
approached $19 billion. Interestingly, while GBTC experienced
significant outflows, the broader spot Bitcoin ETF landscape paints
a different picture. Excluding Grayscale, the nine new ETFs have
collectively amassed 95,000 Bitcoin ($3.8 billion), in stark
contrast to the 65,000 Bitcoin ($2.9 billion) that flowed out of
GBTC. Related Reading: Bitcoin Expected To Mirror Historical
Trends: Glassnode Sets $120K Price Prediction For 2024 22,000 BTC
have been from selling from the FTX Estate, meaning not flowing
into others. While the cessation of this supply overhang is
generally positive for the market, it remains crucial to monitor
whether the outflows from Grayscale persist or intensify, even
after the conclusion of the FTX-related sell-offs. #2 Futures And
Options Markets Cool Down A significant contributor to Bitcoin’s
price movement below $39,500 is the cooling of activity in the
futures and options markets. Notably, the open interest in CME
Bitcoin futures experienced a sharp decline, shedding over $1.64
billion following the approval of spot BTC ETFs, indicating a
reduction in market leverage and speculative interest. Crypto
analyst Skew provided a nuanced analysis of the market dynamics,
particularly focusing on the interplay between Bitcoin’s perpetual
futures (perps) and the spot market. Skew noted, “Nothing too
conclusive yet in perps market other than shorts becoming the
dominant position in the market currently. Perp premiums often
occurring during periods of spot limit selling into price. Spot
premiums notably when perps push price into areas of limit bids on
spot exchanges.” This observation points to a shift towards bearish
sentiment in the perps market, with short positions taking
precedence. The analyst also highlighted the current market’s lack
of volatility and urgency, attributing it to decreased open
interest and a focus on spot market flows. Related Reading: Bitcoin
Price “Mad Heavy,” Why A Detour To $30,000 Might Be Imminent
Further shedding light on the market sentiment, options analytics
platform Greeks.live added insights into the options market,
particularly the behavior of Bitcoin’s implied volatility (IV) and
the volatility risk premium (VRP). They noted, “Bitcoin fell below
the $40,000 as short-term IVs recovered. Overall VRP has risen, and
the Skew curve is skewed towards put options.” This shift towards
put options signifies an increase in market participants hedging or
betting on further downside, thus contributing to the bearish
sentiment. However, Greeks.live also pointed out that despite the
bearish forces and the presence of panic orders, the overall market
is still witnessing a balanced game between bulls and bears. #3
Sentiment Shift – Calls For $35,000 Get Louder The third pivotal
factor influencing Bitcoin’s price drop below $39,500 is a notable
shift in market sentiment, emphasizing the need for a correction
after a prolonged bullish period. Charles Edwards, the founder of
Capriole Investments, articulated the market’s current state,
highlighting the abnormality of the recent price trends and
forecasting an inevitable return to volatility. Edwards stated,
“We’re still not here yet. This pullback is very overdue and lower
is healthier.” He pointed out the rarity of the current market
conditions, noting, “It’s now been over 232 days since Bitcoin had
a 25%+ drawdown in the prior 12 months. The last time this happened
was more than a decade ago, in 2011! The current low downside
volatility period is NOT normal. These dips usually occur every 2-3
months. Volatility will return.” The recent price correction,
although perceived as a healthy and overdue adjustment by analysts,
has nevertheless instilled a sense of panic among traders and
investors. The market’s sentiment has taken a negative turn,
especially as Bitcoin experiences a -20% dip, a movement partly
attributed to the overhang of Grayscale’s supply. The once robust
bullish optimism has waned, giving way to louder calls for a
further decline to $35,000 or even lower. This shift in sentiment
is quantitatively reflected in the Bitcoin Fear & Greed Index,
which has moved to a neutral position of 50, marking a significant
departure from the extreme greed observed during the uptrend. At
press time, BTC traded at $39,219. Featured image from iStock,
chart from TradingView.com
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