The cryptocurrency landscape is undergoing seismic shifts as Bitcoin (BTC) teeters on the precipice of a significant downturn, with bears eyeing a break below the psychologically crucial $40,000 threshold. In the aftermath of spot Bitcoin ETF approval, sell pressure is mounting, exacerbated by macroeconomic headwinds that threaten to reshape the crypto market.
On Friday, Bitcoin experienced a dip, plunging to the $40,200s before staging a modest rebound towards $42,000. Despite this near-4% recovery, the current Bitcoin price sits approximately 15% below yearly highs, which soared above $49,000. Crucially, BTC remains below its 21 and 50DMAs, indicating that the bears are firmly in control.
A key factor contributing to Bitcoin’s recent woes is the stronger-than-expected US economic data, which has tempered expectations for Federal Reserve rate cuts. The resultant rise in US bond yields and the US Dollar Index (DXY) has created macroeconomic headwinds for the entire cryptocurrency space.
Compounding these challenges are post-Bitcoin ETF approval profit-taking activities, notably in Grayscale’s Bitcoin Trust (GBTC), and a noteworthy shift in Bitcoin investment product rotations. Although newly launched Bitcoin ETFs from Blackrock and Fidelity have seen substantial demand, concerns arise from the higher-than-expected rotation of funds from existing Bitcoin investment products to these new alternatives.
GBTC, in particular, has experienced substantial outflows, having sold 52,800 BTC since becoming a spot ETF. Traders, anticipating the closure of the GBTC discount to net asset value (NAV), are engaging in profit-taking, with estimates suggesting $1.5 billion has already exited GBTC, with potential for another $1.5 billion to follow.
The approval of spot Bitcoin ETFs last week, contrary to some expectations, triggered a “sell-the-fact” scenario, reinforcing the control of Bitcoin bears. The looming threat of macroeconomic headwinds, driven by expectations of Fed interest rate cuts starting as early as March, further strengthens the bearish case.
As US interest rate future markets continue to price in a near 50% chance of a 25-bps rate cut in March, despite contrary indications from recent data and Fed policymakers, the potential for macroeconomic headwinds intensifies. A forced reduction in expectations for a March rate cut could bolster US yields and the DXY, aligning with the Bitcoin bear narrative.
The pivotal $40,000 support zone is now under scrutiny, with a break below this level seeming increasingly likely. Such a breach could trigger a fresh wave of technical selling, with the November 2023 highs around $38,000 as the initial target for Bitcoin bears. Chart analysis also suggests the possibility of a retest of long-term support-turned-resistance at $32,000-$33,000.
However, amidst the bearish outlook, Bitcoin’s bull case for 2024 remains robust. The introduction of spot Bitcoin ETFs injects a new source of long-term demand, and the upcoming halving is poised to structurally reduce sell pressure from Bitcoin miners. Additionally, despite uncertainties about the timing, Fed interest rate cuts in 2024 are likely, promising improved liquidity conditions as demand rises and supply falls.
In the face of potential sub-$40,000 prices, long-term Bitcoin bulls may find opportunities to accumulate tokens. Technical buying may also come into play, with the daily candlestick resembling a “hammer,” a pattern often indicative of a bullish reversal. As Bitcoin navigates these tumultuous waters, the question remains: will bears prevail, or will bulls seize the dip and propel BTC into a new phase of resilience and growth? Only time will unveil the answer to this gripping saga in the world of cryptocurrencies.
Read more about:
Julie is a renowned crypto journalist with a passion for uncovering the latest trends in blockchain and cryptocurrency. With over a decade of experience, she has become a trusted voice in the industry, providing insightful analysis and in-depth reporting on groundbreaking developments. Julie's work has been featured in leading publications, solidifying her reputation as a leading expert in the field.