Bitfinex Alpha | Bitcoin Volatile Ahead of ETF Decision

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Bitfinex Alpha | Bitcoin Volatile Ahead of ETF Decision

It would not be Bitcoin if the year did not start off with a bang! After ending the final quarter of 2023 with a 57 percent rise, capping a 155 percent increase for the year, within 3 days of 2024, BTC was dropping by 11 percent on the auspicious day of January 3rd – the day of the Bitcoin Genesis Block. A report that the long-awaited Bitcoin spot ETFs might not be approved at all triggered a multibillion-dollar wipe out of open interest, accompanied by significant liquidations across both long and short positions. While such developments are always chastening, we believe it is also healthy and entirely predictable.

On-chain metrics also tell an interesting story: December 27th – an otherwise unremarkable day for the Bitcoin price – saw a large uptick in Coin Days Destroyed, suggesting strategic positioning by long-term BTC holders, possibly in anticipation of pivotal regulatory decisions on the long-awaited Bitcoin spot ETF. 

As we noted in the Bitfinex Alpha 2024 Outlook report, we believe the market remains vulnerable to pullbacks, especially around the $44-45,000 level, and remains hyper-sensitive to any regulatory developments.

The new year also starts with a US economic picture looking complex but positive. New data from the construction sector shows spending is increasing year on year, indicating an expansion in demand and investment, even though manufacturing has dropped into contraction territory, not just in the US but also the Euro zone and China.

In the latest Fed minutes from the last meeting in December, policymakers made clear their view that interest rates looked to have peaked, with most officials predicting a shift towards lower rates by the end of 2024.

One of the factors that might derail this view, however, is the labour market, which, in December, significantly exceeded expectations in terms of new jobs added. Any further evidence of growth will spook fears of inflation again, and officials will be wary of cutting rates too soon.

On the news front, the year also started with a number of positive developments, starting, of course, with the ETF preparations being made by some of the largest asset managers, all jostling for position to launch a regulated spot Bitcoin ETF product.

Visa, one of the world’s largest credit and debit card companies, also unveiled a Web3-based loyalty reward system, allowing its customers to accumulate digital assets, such as tokenized tickets and loyalty coins, that can be used in both virtual and physical experiences.

Celsius, the embattled crypto lending platform, also revealed that it was unstaking its holdings of Ether to pay back its creditors. Meanwhile, the Bank of Spain announced a test program for wholesale central bank digital currencies, inviting participation from the finance and tech sectors to explore how these currencies can be used in the movement of funds and the settlement of financial assets.           

It’s been a fun start to the year. Happy Trading!

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