Overbought Market After Bitcoin ETF Approvals Result in Price Correction
In short, an overbought market after months of increasing certainty about the SEC’s Bitcoin ETF approvals burst in January and allowed the price to correct some.
During this time, short-term traders helped pump the price, then went ahead and took profits after the Bitcoin ETF approvals by “selling the news.”
Finally, tougher macro conditions, with a stronger dollar after a months-long slump, have led to more bearish sentiment for Bitcoin’s overall outlook in January.
Bitcoin ETF News Fuels Price Surge
The cryptocurrency industry was ecstatic after a D.C. Circuit Court of Appeals ruled in favor of Grayscale last August. The crypto hedge fund’s lawsuit alleged that the SEC’s decision to reject its Bitcoin ETF proposal was arbitrary and capricious.
The judge ordered the SEC to make a good-faith effort to approve an ETF. After that, Bitcoin price really began to heat up in October.
Week after week of new headlines with updates about the progress between over a dozen ETF applicants and the SEC kept pushing Bitcoin higher. The average exchange rate on crypto exchanges soared 80% in just a little over four months from $25,811 on Sept. 1 to $46,670 on Jan. 10. The average annualized ROI for that would be well over 200%. As JP Morgan predicted, the price had to cool.
Short-Term Traders Take Profits
Some Bitcoin investors follow a long-term strategy of accumulating and holding without selling. They are highly convinced that the upside left in cryptocurrency’s global adoption curve is tremendous, and they are loathe to sell any of their holdings. But price arbitrage day traders were apt to take profits in January.
Antoni Trenchev, co-founder of crypto lender Nexo, says the falling Bitcoin price in January was an example of the “buy the rumor, sell the news” phenomenon in exchange markets for liquid assets. A Motley Fool report says, “It seems like some short-term traders bid up the digital currency’s price in anticipation of the recent ETF approvals and then quickly took profits as the euphoria faded.”
Bearish Sentiment and Macro Conditions Impact Bitcoin Price
“Over the past two weeks, Bitcoin has been challenged by tougher macro conditions — evidenced by rallying rates and a strengthening dollar,” wrote Sean Farrell, head of digital-asset strategy at Fundstrat Global Advisors LLC, in a recent note.
As analysts for crypto exchange Bitfinex wrote in a note Tuesday, Bitcoin price fell in January because “bearish sentiment appears to be prevailing.” They expect key support levels at $38,000 and $36,000 if the correction continues, although Friday’s 5% rally could mean a recovery is afoot.
Analyst comment
Heading 1: Negative news – Market correction and bearish sentiment. Market may continue to correct if bearish sentiment prevails and support levels are breached.
Heading 2: Positive news – ETF approval fueled price surge. Market may experience a cooling off period after the surge.
Heading 3: Negative news – Short-term traders taking profits. Market may experience volatility due to profit-taking by short-term traders.
Heading 4: Negative news – Bearish sentiment and macro conditions impact price. Market may continue to face challenges due to bearish sentiment and macro conditions. Potential support levels at $38,000 and $36,000 if correction continues. Recovery possible but uncertain.