Bitcoin experienced a 6.8% price drop between January 11 and January 12, confirming the theory that a sell-the-news event would occur after the approval of a spot Bitcoin exchange-traded fund (ETF). This event was highly anticipated following a 75% rally in the 90 days leading up to the initial trading on January 11. As a result, the lack of excitement and subsequent price correction down to $43,180 can be partially explained.
Traders are now questioning whether investors are becoming bearish after multiple failed attempts to break above $47,000 in the last week. There is some rationale behind this fear, as market makers and whales that tried to front-run the spot ETF issuers by buying ahead of the launch may be forced to sell at a loss. Additionally, Bitcoin miners may feel pressured to sell some of their holdings due to the upcoming halving, which is less than 100 days away.
Regardless of how profitable a Bitcoin mining operation is, a 50% reduction in the block subsidy will greatly impact margins. Recent data shows that miners’ outflow hit a six-year high, with $1 billion worth of BTC being sent to exchanges. However, it’s important to note that other peaks in BTC transfers from miners have coincided with price bottoms in the past, which could instill confidence in bullish traders.
To determine whether traders are indeed turning bearish, it’s important to analyze Bitcoin derivatives. Aggregate futures open interest has increased by 14%, indicating that investors’ interest in leverage positions has not diminished. The CME remains the leader in this market with a 30% market share.
Another factor to consider is the funding rate for Bitcoin perpetual futures, which has stabilized at a low rate since January 4. This indicates a balanced demand for leverage between long and short positions, suggesting that the recent sell-off was not caused by retail traders using excessive leverage.
The market sentiment can also be gauged by analyzing the put-to-call ratio for Bitcoin options volume. In the past seven days, this ratio has reflected lower demand for put options, signaling a lack of fear among investors of a potential price crash.
Part of Bitcoin’s dip on January 12 can be attributed to the lack of information regarding how the spot ETF works in terms of creation, redemption, and price formation. Traders have become skeptical after multiple false ETF approval alerts and the uncertainty caused by some brokers not allowing clients to invest in the sector.
In conclusion, while the recent price correction may have raised concerns among traders, there are various factors to consider before concluding that investors are turning bearish on Bitcoin. It’s important for investors to conduct their own research and make informed decisions when it comes to investments and trading moves.