January 17 Bitfinex Alpha | Bitcoin volatility continues as the possibility of a market correction increases
In Bitfinex Alpha
Following the approval of the Bitcoin ETF, the sell-off last weekend was a direct result of short-term investors taking large profits from the average purchase price of around $38,000.
We still maintain the view that the market is vulnerable to a correction and price decline in the first part of this year. We note that just before the sell-off, there was an unprecedented transfer of Bitcoin “with money” to exchanges.
However, despite this selling pressure, we see a number of factors that continue to indicate that the price of Bitcoin is supported. First, there has been a significant increase in ERC-20 stablecoins on exchanges, indicating increased speculative sentiment and investor confidence. History shows that expansion in stablecoins leads to more buying.
Second, CME Bitcoin futures continue to see high open interest, reaching a new year high just before the ETF approval announcement and even after the event, remaining high. This indicates that sophisticated investor interest in Bitcoin continues, albeit through derivatives rather than direct holdings.
Third, long-term bondholders have remained firm in their positions, highlighting a market that is resilient but vulnerable to short-term volatility.
Regarding the macro environment, consumer prices in December rose higher than expected, mainly due to increased rental costs. However, strong job creation and real wage growth continued, with wage growth outpacing inflation.
We continue to emphasize the balance the Fed must strike as it seeks to stimulate growth while controlling inflation. Interest rate cuts planned for 2024 are intended to support the economy, but must be carefully considered to avoid a return of inflation.
However, the current market outlook is positive. Most people expected — as we did — a Fed rate cut, especially since more than $3 trillion in corporate debt accumulated at low interest rates during the pandemic will face higher interest rates in 2025. The Fed will want to ensure interest rates do not rise unduly. . The burden of corporate growth. Furthermore, the expiration of the Tax Cuts and Jobs Act of 2017 at the end of 2025 will require adjustments to monetary policy.
In such a scenario, the Treasury yield curve no longer inverts and returns to a more normal structure and renewed optimism returns.
Investors also began shifting assets away from money market funds toward longer maturities, Treasuries and private equity funds, reflecting their risk preference. At the same time, the Fed is considering slowing the withdrawal of its asset portfolio to maintain market liquidity and efficiency.
On the news side, there have been important developments. First, the SEC faced a security breach in its “X” account, which led to the unauthorized announcement of a Bitcoin ETF, which immediately rocked BTC prices and sparked a broader discussion about missing cybersecurity vulnerabilities in financial regulators.
Now that the ETF has been officially approved, we expect the Bitcoin investor base to expand significantly, bringing with it a new wave of enthusiasm among investors and market participants.
The impact of this approval has been clearly seen in market dynamics. Following the SEC's approval, Bitcoin prices rose significantly, reflecting the market's positive reception of this development. The first day of trading for the 11 new Bitcoin spot ETFs saw a notable trading volume of $4.6 billion, underscoring the high level of investor interest and growth potential of the financial products.
Bitfinex Alpha welcomes this achievement and remains optimistic about BTC's future prospects – although we remain vulnerable to a price correction in the short term. Happy trading!
