Bitfinex Alpha | BTC volatility continues as market correction becomes more likely.

January 17th Bitfinex Alpha | BTC volatility continues as market correction becomes more likely.

Last weekend’s sell-off following the approval of the Bitcoin ETF was a direct result of short-term investors making significant profits at the average purchase price of approximately $38,000.

We remain of the view that there is a strong possibility that the market will undergo a correction early this year and that prices will decline. We note that just prior to the sale there was an unprecedented transfer of Bitcoin “as money” to an exchange.

However, despite this selling pressure, there are a number of factors that suggest that Bitcoin price continues to find support. First, there has been a significant increase in ERC-20 stablecoins on exchanges, a sign of increased speculative sentiment and investor confidence. History shows that stablecoin expansion leads to more purchases.

Second, CME Bitcoin futures continue to see high open interest, hitting a new year’s high just before the ETF approval announcement and remaining high following the event. This shows that sophisticated investor interest in BTC continues, even through derivatives rather than direct holdings.

Third, long-term holders have held firm in their positions, highlighting a market that is resilient but vulnerable to short-term volatility.

Regarding the macro environment, consumer prices rose higher than expected in December, primarily due to increased rental costs. However, strong job creation and real wage growth continued, with wage growth outpacing inflation.

We continue to highlight the balancing act the Fed must undertake to promote growth while curbing inflation. Interest rate cuts planned for 2024 are intended to support the economy but must be carefully considered to avoid a return to inflation.

However, current market expectations are positive. Most people, like us, expected a rate cut from the Federal Reserve. The Fed will want to make sure interest rates aren’t cut too much, especially since more than $3 trillion in corporate debt accumulated at low interest rates during the pandemic will face higher interest rates in 2025. It puts a strain on business growth. Additionally, the Tax Cuts and Jobs Act of 2017 expires at the end of 2025, necessitating monetary policy adjustments.

In this scenario, the Treasury yield curve no longer inverts, returns to a more normal structure, and renewed optimism returns.

Additionally, investors have begun to shift assets from money market funds to longer-maturity government bonds and private equity funds, reflecting their appetite for risk. At the same time, the Fed is considering slowing the rate of asset portfolio drawdown to maintain market liquidity and efficiency.

On the news side, we have made significant progress. First, the SEC faced a security breach in account ‘X’, which led to the unauthorized release of a Bitcoin ETF, which immediately sent the BTC price into a tailspin and sparked widespread discussion about the financial regulator’s tolling cybersecurity gap.

Now that official ETF approval has been completed, we expect the Bitcoin investor base to expand significantly, bringing a new wave of enthusiasm among investors and market participants.

The impact of this approval was clearly visible in market dynamics. Following the SEC’s approval, the BTC price soared, reflecting the market’s positive reaction to this development. The first day of trading for 11 new Bitcoin spot ETFs recorded a notable trading volume of $4.6 billion, highlighting the high level of investor interest and growth potential for the financial instrument.

Bitfinex Alpha welcomes this milestone and is optimistic about BTC’s future prospects. However, it is still vulnerable to short-term price adjustments. Happy trading!