Bitcoin Price Drops 6.8% After Spot ETF Approval
The approval of a spot Bitcoin exchange-traded fund (ETF) had many traders eagerly awaiting its launch on January 11. However, what followed was a surprising drop in Bitcoin price by 6.8% over the course of the next day. This sell-the-news style event confirmed the theory of bears who predicted that the excitement leading up to the ETF approval would be followed by a price correction. The drop in price to $43,180 from its recent high of almost $49,000 can be attributed to the lack of excitement and profit-taking by market makers and large investors.
Miners’ Outflow Hits 6-Year High as BTC Sent to Exchanges
Bitcoin miners are feeling the pressure to sell off some of their holdings as the upcoming halving event draws near. With less than 100 days remaining until the halving, miners are concerned about the potential impact on their profitability. A 50% reduction in the block subsidy will undoubtedly affect their margins, regardless of how profitable their operations may be. As a result, miners have been sending a significant amount of Bitcoin to exchanges, with over $1 billion worth of Bitcoin being transferred recently — the highest amount in six years.
Bitcoin Derivatives Data Suggest Neutral Market Sentiment
To gauge whether traders are turning bearish on Bitcoin, it is important to analyze Bitcoin derivatives. Despite the recent price drop, the aggregate futures open interest has increased by 14% since January 5, indicating that investors’ interest in leverage positions remains strong. Interestingly, this increased interest in futures has not been negatively impacted by liquidations. The Chicago Mercantile Exchange (CME) is leading the market with a 30% share of Bitcoin futures contracts.
BTC Options Volume Reflects Lower Demand for Sell Options
Another indicator of market sentiment is the activity in Bitcoin options. A put-to-call ratio below 1 indicates that there is less demand for put (sell) options compared to call (buy) options, which is a bullish sign. In the past seven days, the put-to-call ratio for Bitcoin options volume has ranged between 0.35 and 0.65, suggesting that there is lower demand for sell options. This further indicates that traders are not betting on a significant price decline and supports a more neutral market sentiment.
Lack of Information Fuels Skepticism and Panicked Selling
Part of the reason for Bitcoin’s recent dip can be attributed to the lack of information regarding the spot Bitcoin ETFs. Traders are unsure about how these ETFs work in terms of creation, redemption, and price formation. The slight differences between issuers and the lag in inflow data have added to the skepticism surrounding the ETFs. Additionally, the fear, uncertainty, and doubt caused by some brokers not allowing their clients to invest in the sector have further fueled panic selling. Traders, lacking information and fearing negative surprises, have chosen to sell their Bitcoin holdings.
Disclaimer: This article does not contain investment advice or recommendations. Every investment and trading move involves risks, and readers should conduct their own research before making any decisions.
Analyst comment
1. Bitcoin Price Drops 6.8% After Spot ETF Approval: Negative news. The drop in price confirms the theory of bears and indicates a market correction after the excitement of ETF approval. Market may continue to experience downward pressure in the short term.
2. Miners’ Outflow Hits 6-Year High as BTC Sent to Exchanges: Negative news. Increased selling by miners ahead of the halving event suggests concerns about profitability. Selling pressure may continue, leading to potential downward pressure on the market.
3. Bitcoin Derivatives Data Suggest Neutral Market Sentiment: Neutral news. Despite the recent price drop, futures open interest has increased, indicating continued interest in leverage positions. Market sentiment is relatively neutral, suggesting stability in the short term.
4. BTC Options Volume Reflects Lower Demand for Sell Options: Neutral news. The lower demand for sell options indicates a more bullish sentiment. Market may remain relatively stable in the near term.
5. Lack of Information Fuels Skepticism and Panicked Selling: Negative news. Lack of information and brokers’ restrictions have fueled panic selling in the market. Uncertainty may continue to impact market sentiment, leading to further selling pressure.
