January 15 Bitfinex Alpha | More BTC volatility is coming as the market remains vulnerable to a pullback
In Bitfinex Alpha
Following the Bitcoin ETF approvals, the sell-off we saw last weekend was a direct result of short holders making significant profits for an average realized purchase price of around $38,000.
We maintain our position that the market remains vulnerable to corrections and pullbacks in this early part of the year. We note that just before the sale, there was an unprecedented transfer of BTC “in the money” to exchanges.
However, despite this selling pressure, we see a number of factors that continue to show support for the Bitcoin price. First, there has been a significant increase in ERC-20 stablecoins on exchanges, indicating increased market speculation and investor confidence. Historically, expansion in stablecoins leads to increased buying.
Second, Bitcoin CME futures continue to see high levels of open interest, reaching a new year-to-date high just before the ETF approvals were announced, and even after the event, remain at high levels. This suggests that evolving investor interest in Bitcoin continues, albeit through derivative instruments rather than direct holdings.
The third basis is that long-term holders remain fixed in their positions, which emphasizes the flexibility of the market but is vulnerable to short-term fluctuations.
In the macro environment, consumer prices for December rose more than expected, primarily due to increased rental costs. However, strong job creation and real wage growth continue, with wages growing faster than the rate of inflation.
We continue to highlight the balancing act the Fed must strike as it seeks to boost growth while controlling inflation. Interest rate cuts planned for 2024 are intended to support the economy, but must be carefully calibrated to avoid reigniting inflation.
But the current market outlook is positive. Most people expect – as we do – 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 be careful to ensure that does not happen. . Placing an undue burden on corporate growth. Furthermore, the expiration of the Tax Cuts and Jobs Act of 2017 at the end of 2025 necessitates adjustments in monetary policy.
In such a scenario, the Treasury yield curve no longer inverts and returns to a more conventional structure and a renewed sense of optimism.
Investors have also begun shifting assets away from money market funds and into longer-term Treasuries and private equity funds, reflecting their preference for risk. At the same time, the Federal Reserve is considering a slower reduction of its asset portfolio to maintain market liquidity and efficiency.
In terms of news, we have seen important developments. First, the SEC faced a security breach in its “X” account, which led to an unauthorized announcement regarding Bitcoin ETFs, which temporarily shook the price of BTC and sparked a broader conversation about cybersecurity vulnerabilities within financial regulators.
Now that we have officially received ETF approval, we are looking forward to a significant expansion of the Bitcoin investor base, bringing with it a new wave of enthusiasm among investors and market players.
The impact of this approval was evident in market dynamics. Following the SEC's approval, the price of Bitcoin rose, reflecting the market's positive reception to this development. The first day of trading for 11 new spot Bitcoin ETFs saw a notable trading volume of $4.6 billion, underscoring the significant investor interest and potential growth trajectory of these financial products.
Bitfinex Alpha He applauds this historic achievement and remains positive regarding BTC's future outlook – although we remain vulnerable to short-term pullbacks. Happy trading!
